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THE 



ELEMENTS 



OF 



POLITICAL ECONOMY: 



BY FRANCIS WAYLAND, D. D., 



PRESIDENT OF BROWN UNIVERSITY, AND PROFESSOR OF MORAL 
PHILOSOPHY. 



THIRD EDITION— IMPROVED. 



BOSTON: 
GOULD, KENDALL, AND LINCOLN. 

AND SOLD BY THE PRINCIPAL BOOKSELLERS THROUGHOUT 
THE UNITED STATES. 

1840. 



,\\ 



to 



Entered according to Act of Congress, in the year 1837', by 

Francis Wayland, 

In the Clerk's Office of the District Court of the United States, 

for the District of Rhode Island. 



XM EXCHANGE 

Drew Theai. Sena. 

IAN 24 1908 



W. BARTLETT AND CO., PRINTERS, 

WORCESTER, MASS. 



(*f£ 



PREFACE. 



Ii7 



The following work contains, in substance, 
the Lectures on Political Economy which 
have been delivered, for some years past, to 
the Senior Class in Brown University. 

When the Author's attention was first di- 
rected to the Science of Political Economy, 
he was struck with the simplicity of its prin- 
ciples, the extent of its generalizations, and 
the readiness with which its facts seemed ca- 
pable of being brought into natural and me- 
thodical arrangement. At the same time, it 
appeared to him that the works on this sub- 
ject, in general use, while they presented 
its doctrines truly, yet did not present them in 
such order as would be most likely to render 
them serviceable either to the general student, 
or to the practical merchant. This defect, for 
the sake of his pupils, he endeavored to sup- 
ply. What he thus at first prepared for them, 
he now offers to the public. In how far he 
has succeeded, it must be left for others to de- 
cide. 

His object has been to write a book, which 
any one who chooses may understand. He 
has, therefore, labored to express the general 
principles in the plainest manner possible, and 



IV PREFACE. 



to illustrate them by cases with which every 
person is familiar. In doing this, he is aware 
that he may at times have become chargeable 
with repetition. Sometimes, the same case may 
have been introduced a second time, for the 
sake of illustrating a different principle. At 
other times, the same fact may belong equally 
to two different divisions of the subject. In this 
latter case, he has introduced it the second 
time instead of referring the reader to what 
has been said before, because he believes that 
readers rarely take the trouble to make use of 
a marginal reference. 

The principles of Political Economy are so 
closely analogous to those of Moral Philoso- 
phy, that almost every question in the one, 
may be argued on grounds belonging to the 
other. He has not, however, thought it prop- 
er, in general, to intermingle them, but has ar- 
gued economical questions on merely econom- 
ical grounds. For this reason, he has omitted 
many considerations which are frequently in- 
troduced into discussions on this subject. For 
instance, on the question of protecting duties, 
it is frequently urged, that, if a contract have 
been made by the government with the manu- 
facturer, that contract is morally binding. 
This, it will be perceived, is a question of 
Ethics, and is simply the question, whether 
men are or are not morally bound to fulfil 
their contracts. With this question, Political 
Economy has nothing to do. Its only busi- 
ness is, to decide whether a given contract 
were or were not ivlse. This is the only ques*- 



PREFACE. 



tion, therefore, treated of in the discussion of 
this subject in the following work. 

It may possibly be urged that the Author, 
having had no experience in mercantile busi- 
ness, should have left this subject to be treat- 
ed of, by practical men. To this he has only 
to reply, that principles belong to all men ; 
that there seemed very little hope that this 
subject would be undertaken by men engaged 
in active business ; and that he could not per- 
ceive why his doing, as well as he was able, a 
work which seemed to be necessary, should pre- 
vent any one else from doing it as much better 
as he saw fit. 

It has been to the Author a source of re- 
gret, that the course of discussion in the fol- 
lowing pages, has unavoidably led him over 
ground which has frequently been the arena of 
political controversy. In all such cases, he 
has endeavored to state what seemed to him 
to be the truth, without fear, favor, or affec- 
tion. He is conscious to himself of no bias 
towards any party whatever, and he thinks 
that he who will read the whole work, will be 
convinced that he has been influenced by 
none. While he cherishes for his fellow citi- 
zens who are engaged in political warfare, ev- 
ery feeling of personal respect, he desires it to 
be believed that he entertains for party itself, 
whether political, ecclesiastical or social, the 
opinion which " befits him as an American, a 
Christian, and a gentleman." * 

* Col. Hutchinson, when speaking in the British Parliament, 
respecting the part which he had taken in the King's death. 



VI PREFACE. 



It having become necessary to print a third 
edition of the Elements of Political Econo- 
my, the Author has revised the work with all 
the attention of which he was capable. He 
hopes that it will be found that he has im- 
proved it, by omitting in a few cases what 
was superfluous, by rendering more intelligible 
what was obscure, and by adding in several 
places such suggestions as have arisen from an 
observation of the commercial condition of 
our country within the last two or three years. 
The Author also hopes that the present edition 
will appear in a better dress and at a lower 
price than those which have preceded it ; and 
thus be more deserving of the attention of 
those instructors who have used it as a text- 
book. 

In the hope that these pages will be found 
subservient to the best interests of science, 
and that they may be of some practical utility 
to his fellow citizens, the Author respectfully 
submits them to the judgment of the public. 

Brown University, May 1, 1840. 



C ONTENT 



AND 



PLAN OF THE WORK 



INTRODUCTION. 

DEFINITIONS AND DIVISION OF THE SUBJECT. 



Political Economy, Wealth, 
Value, Intrinsic, . 

" Exchangeable, 
Cost, 

Production, 
Exchange, 
Distribution, . 
Consumption, 



Page 



15 
16 
18 
24 
25 
26 
26 
27 



BOOK FIRST. 

OF PRODUCTION. 

CHAPTER FIRST. 

OF CAPITAL. 

The Nature of Capital, ..... 30 

The Forms of Capital, ..... 30 

The changes which Capital undergoes, ... 31 

The Increase of Capital, .... 33 

Productive and unproductive Capital, ... 35 

Fixed and circulating Capital, .... 37 

Money, ....... 42 

CHAPTER SECOND. 

OF INDUSTRY. 

PART I. 

THE OBJECTS AND FORMS OF HUMAN INDUSTRY. 
SECTION I. 
The different Objects of Human Industry. 
Change of Elementary form, .... 44 



Vlll 



CONTENTS. 



Change of Aggregate form, .... 45 

" " Place, ...... 45 

General Conclusions, ..... 46 

SECTION II. 

The different forms of Human Industry. 

Industry of Discovery, ..... 51 

" " Invention, ..... 52 
Operative Industry, .... .52 

Of the Products of these various forms of Human Industry, 54 

The Product of the Operative Laborer, . . 54 

" " Discoverer, ... 55 



PART II. 

THE MODES BY WHICH THE PRODUCTIVENESS OF HUMAN 
INDUSTRY MAY BE INCREASED. 



SECTION I. 

The use of Natural Agents. 

Of Natural Agents, .... 

Of Tools and Machines, 

Of Natural Agents which create Momentum, 

Of Animate Agents, .... 

Of Inanimate Agents, 

Gunpowder, ..... 

Wind, 

Gravitating power of water, 

Steam, ..... 

The advantages of Inanimate over Animate Agents, 

Of the Natural Agents by which Momentum is applied 

Uses of these Agents, .... 

SECTION II. 

Of Division of Labor. 
Principles on which the utility of Division of Labor depends, 

SECTION III. 

Limitations to the Division of Labor. 
From the Nature of the Process, .... 

From other Causes, t 

Capital, ....... 

Demand, ...... 

Of National Division of Labor, .... 



62 
63 
64 
65 
66 
66 
67 
69 
69 
70 
73 
74 



79 



86 

87 
87 
88 
92 



SECTION IV. 

Effects of the increased productiveness of Human Industry. 
I. Effect upon Producers, ..... 101 



CONTENTS. ix 

Immediate, ...... 101 

Ultimate, ....... 103 

II. Effect upon Consumers, .... 107 

CHAPTER THIRD. 

OF THE LAWS WHICH GOVERN THE APPLICATION OF LA- 
BOP.. TO CAPITAL. 

SECTION I. 

The Conditions of our leing, on which the laws on this sub- 
ject are founded, ..... 110 

SECTION II. 

Industry will be applied to Capital, as every man enjoys the 

advantages of his Labor and Capital. 
As every man may gain all he can, . . . 114 

As every man may use his own as he will, . . 119 

SECTION III. 

Labor will be applied to Capital, as every man suffers the 

inconveniences of Idleness, . . . 124 

Poor Laws, . . . . . . 126 

SECTION IV. 

The greater the Ratio of Capital to Labor, the greater will be 

the Stimulus to Labor, .... 129 

SECTION V. 

Industry xcill be applied to Capital, in proportion to the In- 
tellectual Condition of a People, . . .132 

SECTION VI. 

Of the Effects of direct Legislation, as a means of increas- 
ing Production. 
Production, . . . . . , 140 

Of Protecting Duties, . • . . . 140 

Of Bounties, . ...... 147 

Objections Considered, ..... 147 



BOOK SECOND. 

EXCHANGE. 

CHAPTER FIRST. 

BARTER, OR EXCHANGE IN KIND. 
SECTION I. 
Of the principles in our Constitution which give rise to Ex- 
change, ...... 161 



X CONTENTS. 

SECTION II. 

General Doctrines of Exchange. 

Of the exchangeable value of Products, . . . 173 

Exchange confers no new value, . . . 177 

Conditions on which frequency of Exchange depends, . 181 

Stagnation of Business, ..... 187 

Effects of legislative enactments on Exchange, . 190 

Internal Improvements, .... 193 

CHAPTER SECOND. 

EXCHANGE BY MEANS OF A METALLIC CURRENCY. 

SECTION I. 

Of the Use of a Circulating Medium, . . . 198 

SECTION. II. 

Of the Qualities necessary to that which constitutes a Circu- 
lating Medium, ..... 205 

SECTION III. 

Of the Functions of Money, ..... 211 

SECTION IV. 

Of the Agency of Government, in respect to a Circulating Me- 
dium, ...... 229 

CHAPTER THIRD. 

OF A CIRCULATION BY MEANS OF A PAPER CURRENCY. 
SECTION I. 
Of the Nature of Banks in General. 

Banks of Deposit and Exchange, .... 237 

Banks of Discount, or Loan, .... 247 

Banks of Circulation, or Issue, .... 250 

Of the sources of the profit of Banks, . . . 256 

SECTION II. 

Of the Utility of Banks. 

As Institutions of Deposit, ..... 258 
" " Loan, ..... 261 

" " Circulation, .... 275 

SECTION III. 

Advantages and disadvantages of a Paper Circulation, . 278 

SECTION IV. 

Of the agency of Society, that is, Government, in respect to 

a Paper Circulation, ..... 295 



CONTENTS. XI 



BOOK THIRD. 

OF DISTRIBUTION. 

CHAPTER FIRST. 

WAGES, OR THE PRICE OF LABOR. 

SECTION I. 

The General Principles of Wages. 

Of Simple Labor, ...... 309 

Of Educated Labor, . . . . 309 

Of the supply of Simple Labor, . . . . 316 

Of the demand for Simple Labor, . . . 318 

Population and Wages, ..... 320 

Labor in the Fine Arts, ..... 323 

SECTION II. 

Of the Special Circumstances by which, irrespectively of Cap- 
ital, the wages of labor are affected, . . . 329 

CHAPTER SECOND. 

THE PRICE OF MONEY, OR INTEREST. 
SECTION I. 
Of the benefit of Capital to the Laborer, . . . 33^ 

SECTION II. 

Of Risk and Convenience of Investment. 

Of Risk, ....... 339 

Of Convenience of Investment, . . . 342 

SECTION III. 

Of the Rate of Interest, as affected by the use of Capital. 

By the average profit of Capital, .... 344 

" Ratio between Supply and demand, . . 345 

" Freedom of Capital, ..... 348 

" Taxation, ...... 349 

te Usury Laws, ...... 351 

Of Stocks, . . . . . . 355 

CHAPTER THIRD. 

OF THE PRICE OF LAND, OR RENT. 

Price of Land, or Rent, ..... 360 

Mines, ....... 375 

Interest of Real Estate, ..... 376 

Extent of Business, ..... 379 

Insurance, ....... 382 



Xll CONTENTS. 

BOOK FOURTH. 

OF CONSUMPTION. 

CHAPTER FIRST. 

OF THE NATURE AND DESIGN OF CONSUMPTION. 
Nature of Consumption, ..... 384 
Design of Consumption, .... 3S8 

CHAPTER SECOND. 

OF INDIVIDUAL CONSUMPTION. 

SECTION I. 

Of individual Consumption, for the sake of re-production. 
Of Consumption of Capital, .... 393 

Of Consumption of Labor, .... 397 

SECTION II. 

Of Consumption for the gratification of Desire. 
Of Consumption for the purpose of self-gratification, simply, 402 
Consumption in respect to the relative Objects of Desire, 406 

CHAPTER THIRD. 

OF PUBLIC CONSUMPTION. 
SECTION I. 

Of Taxes, or the manner in lohich the public expenditure is 
provided for. 

Of direct and indirect Taxation, .... 416 
Of the principle by which Taxation should be regulated, 419 

SECTION II. 

Of the purposes for which the Public Revenue is commonly ex- 
pended. 

Of the expenses of Civil Government, . . . 423 

Expenses for Public Education, .... 425 

" " Maintaining Religious Worship, . . 429 

« " National Improvement, . . . 430 

ft " Pauperism, ..... 431 

» " War, ..... 432 

Note ori the Precious Metals, .... 434 



ELEMENTS 



OF 



POLITICAL ECONOMY. 



POLITICAL ECONOMY. 



INTRODUCTION. 

DEFINITIONS, AND DIVISION OF THE SUBJECT. 

1, Political Economy is the Science of Wealth. It 
is sometimes defined the Science of National Wealth. 
This definition seems not, however, sufficiently com- 
prehensive ; inasmuch as, the laws which govern the 
creation of wealth are essentially the same, whether 
they are considered in respect to man as an individual, 
or to man as a society. 

By Science, as the word is here used, we mean a 
systematic arrangement of the laws which God has 
established, so far as they have been discovered, of 
any department of human knowledge. It is obvious, 
upon the slightest reflection, that the Creator has sub- 
jected the accumulation of the blessings of this life to 
some determinate laws. Every one, for instance, 
knows that no man can grow rich, without industry 
and frugality. Political Economy, therefore, is a sys- 
tematic arrangement of the laws by which, under our 
present constitution, the relations of man, whether in- 
dividual or social, to the objects of his desire, are go- 
verned. 

2. Wealth. It has been frequently remarked, that 
the universe around us is composed of objects suited 
to gratify our desire, and thus minister to our happi- 
ness. The capacity to gratify desire, is, therefore, the 



16 OF VALUE. 

first element that enters into our notion of wealth. 
But as the gratification of our desires, by means of an 
external object, almost always supposes some change 
effected in that object; and, as we could have no right 
to effect that change, unless that object were our own, 
another element, which enters into the notion of 
wealth, is the idea of possession. Hence, wealth may 
be defined any object, having the power of gratifying 
human desire, which is capable of being appropria- 
ted. He who possesses many of these objects in abun- 
dance, is termed rich. He who possesses few of them, 
is termed poor. He who possesses a large amount 
of money, is also called rich ; because, with money, 
he can generally procure whatever else of physical 
convenience he may desire. 

3. Of value, intrinsic and exchangeable. The par- 
ticular quality in any substance, which renders it 
capable of gratifying human desire, is called its 
value. Thus, that quahty of fuel, which constitutes 
its value, is its power of generating heat, or of gratify- 
ing this desire in man. A particular substance may 
have the power of gratifying either one or several de- 
sires, and thus it may have either one or several 
values. Thus anthracite coal is at present known 
to have but one value, namely, that of generating 
heat. Bituminous coal possesses also another, as it 
is also used in the manufacture of gas for the purpo- 
ses of illumination. Wood has several values, inas- 
much as, besides being used for fuel, it may also be 
used for building, and for various purposes in the arts. 
Iron has as many forms of value, as there are uses to 
which it may be applied, in promoting the conve- 
nience of man. 

The degree of the intrinsic value of any substance, 
depends upon the nature and the number of the de- 
sires which it can gratify. If the gratification of 
that desire to which it is subservient, be necessary 
to the existence or to the comfort of man, its value 
will be great. Such is the case with air, water, 
clothing, food, and fuel. If the gratification which 



OF VALUE. 17 

it affords can be easily dispensed with, its value will 
be small. Such is the case with articles of luxury, 
or the means of mere amusement. The inferiority 
of the value of this latter class, is evident from the 
fact, that, in seasons of scarcity, these are first relin- 
quished. And again, the degree of the value of any 
substance, depends upon the number of desires 
which it can gratify. India Rubber, or Caoutchouc, 
a few years since, was used but for one purpose, 
that of rubbing out pencil marks. It is now used in 
the manufacture of shoes, and for several other very 
important purposes. The intensity of its value is, 
therefore, greatly increased. 

We have thus far treated only of intrinsic value, 
or of the power which any particular substance pos- 
sesses, of gratifying human desire. 

If, however, we examine the various articles of 
value around us, we shall observe a very remarka- 
ble difference between them. Some of them may be 
made the means of procuring for us, by exchange, 
other objects of desire. Such, for instance, are gold, 
silver, iron, coal, wood, &c. He who possesses a 
large quantity of either of these, may, ordinarily, pro- 
cure for himself, by exchange, any thing else that he 
needs. Others, on the contrary, and those of great 
intrinsic value, are destitute of this property. What 
has greater intrinsic value than air, the light of the 
sun, or water? Yet, we can get nothing in exchange 
for air or sun-light, and very rarely for water. And 
again; substances having an exchangeable value, do 
not possess that value, in proportion to their intrin- 
sic value. Iron has a far greater intrinsic value 
than gold; yet, an ounce of gold has a far greater 
exchangeable value than an ounce of iron; that is, 
an ounce of gold will procure for us many more ar- 
ticles of convenience, in exchange. This latter pro- 
perty, or the power of procuring for us something 
else in exchange, is called exchangeable value. 

If, now, we compare those substances which have 
2* 



18 OF EXCHANGEABLE VALUE. 

not, with those which have exchangeable value, we 
shall find them to differ in the following respects : 

1. Those which have no exchangeable value, are 
every where abundant and inexhaustible. The sup- 
ply of the others is limited in quantity or is limi- 
ted in place. Air, and the light of the sun, are inex- 
haustible every where. Coal is in some places in- 
exhaustible, but it is not so in others. Where it lies, 
for miles together, immediately upon the surface, 
and in beds of unknown thickness, it has no ex- 
changeable value. Where it must be carried to any 
distance, to be brought to the consumer, it then ac- 
quires an exchangeable value. 

2. The value of the first class of substances has 
received no addition from human labor, but derives 
whatever qualities it possesses, directly from the gift 
of God. The value of the other, has always received 
some addition, and, frequently, it is derived altogeth- 
er from human labor. Neither air, nor the light of 
the sun, can receive any additional power of grati- 
fying human desire, from any effort of man. On 
the contrary, all the most important values of iron, 
are derived from human skill. A lump of iron ore 
is as valueless as granite or sandstone. The pecu- 
liar properties of the metal, are the result of the pro- 
cesses through which it passes. When, however, a 
substance which ordinarily possesses only intrinsic 
value, is placed under such circumstances that hu- 
man labor must be added to it in order to enable it to 
gratify desire, it then acquires exchangeable value. 
Thus water, which ordinarily, has no exchangeable 
value, is frequently sold by the gallon in cities, be- 
cause it can be procured in purity only from a dis- 
tance, and hence, before it can gratify the desire of 
particular individuals, it requires the labor of trans- 
portation to be added to it. 

We see then, that every substance on earth may 
have, and, doubtless, it actually has, intrinsic value. 
If we then consider all those qualities which arc ne- 
cessary to prepare a substance for the gratification 



OF EXCHANGEABLE VALUE. 19 

of human desire to be intrinsic values, these may be 
divided, into two kinds; first, those which are im- 
parted to the substance by the immediate act of God; 
and secondly, those that are imparted to it through 
the intermediate agency of man. The former, being 
the gift of God, are gratuitously received, and gra- 
tuitously parted with. The latter have cost hu- 
man labor, and therefore cannot be obtained without 
an equivalent. Hence it is the latter alone, that en- 
ter into computation, in fixing exchangeable value. 
Thus the exchangeable value of iron and of gold, 
respectively, does not depend upon the uses to which 
these metals may be put, but upon the labor which 
must be employed in preparing them to gratify desire. 
But it is plain, that if a man expend labor in the 
creation of a value, this labor gives him a right to 
the exclusive possession of that value ; that is, sup- 
posing the original elements belonged to no one else. 
Now, as almost all the qualities which gratify hu- 
man desire, can exist only by the exertion of this la- 
bor, it follows, that all such objects must have al- 
ready become the exclusive possession of some hu- 
man being. Hence, he who wishes to possess such 
objects, must either himself expend the labor neces- 
sary for producing them, or else he must procure 
them by voluntary concession, from some one who 
has already expended it. But he who has expended 
labor upon a substance, will never voluntarily sur- 
render it up, either for nothing, or for that which he 
can obtain without labor. He who makes knives, 
will neither give them away, nor exchange them for 
air, or water, or sunlight. Hence, he who wants 
knives must either make them himself, or else he 
must offer the knife-maker, in exchange for them, 
some value which he himself has created. Hence, 
every man who desires the means of happiness, must 
labor to obtain them. And, as every man has his pre- 
ference for some particular kind of labor; and as, 
moreover, every man can succeed better by confin- 
ing his labor to one thing, than by devoting it to 



20 OF EXCHANGEABLE VALUE. 

twenty things, every man is desirous of exchang- 
ing some portion of the value created by himself, for 
that created by others. So soon as this is the case 
with any one substance, it then has acquired ex- 
changeable value : that is, just so soon as other men 
are willing to give me a value which they have crea- 
ted, for that which I have created, then the result of 
my labor has exchangeable value, and not before. 

The degree of the exchangeable value of any one 
substance, depends chiefly upon the amount of labor 
and of skill necessary to create that value. No one 
would exchange what has cost him two days' labor, 
for that which has cost another man of the same skill, 
but one day's labor; because, rather than make such 
an exchange, he would create this second value for 
himself. Thus, if a hundred pounds of fish could be 
procured by a day's labor, and only twenty-five 
pounds of venison ; men would exchange, not pound 
for pound, but labor for labor : that is, at the rate 
of four pounds of fish for one pound of venison. 
The amount of labor expended in the creation of a 
value, is commonly denominated its cost. This is 
always the standard by which, for long periods, the 
degree of exchangeable value may be estimated. 

When, however, we here speak of labor, we speak 
of it as simple labor ; that is, without taking into con- 
sideration the degree of skill which may be combin- 
ed with it, or the other circumstances which may 
conspire to create variation in its value. These are 
to be considered hereafter. We suppose, in the re- 
marks above, that, in all cases, labor of the same kind 
is to be compared together. 

I have said above, that cost forms the standard 
by which the degree of exchangeable value for long 
periods is to be estimated. Temporary circumstances 
may create a variation from this standard; and 
may, for a short time, elevate this value above, or 
depress it below, the cost. These, however, can 
continue to operate but for a short period; the ten- 
dency of exchangeable value is always to gravitate 



OF EXCHANGEABLE VALUE. 21 

towards cost. The causes of this variation, we will 
now briefly illustrate : 

1. Suppose, that by the use of better tools, or 
from any other cause, the supply of fish became 
more abundant, so that a man could, by one day's 
labor, procure two hundred instead of one hundred 
pounds. The hunter would not then be Avilling to 
exchange as before, since he would now rather catch 
his fish for himself. He would demand eight pounds 
of fish for one pound of venison : that is, the ex- 
changeable value of fish would fall ; or, in other 
words, it could not procure as much venison in ex- 
change, as it did before. But as, in consequence 
of this reduction in price, there would be an in- 
creased demand for fish ; that is, more persons would 
want it, and they would also want a larger quantity 
than before, the fisherman would not be obliged to 
exchange at half the former rate, but would be able 
to exchange at a rate somewhat above it ; say, per- 
haps, six or seven pounds for a pound of venison. 
Thus, both parties would be gainers. The fisher- 
man would procure more venison ; the hunter more 
fish, by a day's labor. Thus, a benefit to one, is a 
benefit to all. And thus we see, that, other things 
being equal, the greater the supply of any article, the 
less is its exchangeable value ; that is, the less amount 
of other things, can it procure in exchange. 

2. Supposing the labor necesssry for taking fish to 
be doubled ; so that, by the labor of a day, no more 
than fifty pounds could be procured. The fisher- 
man, then, would not sell, as at first, four pounds of 
the fish for one pound of venison ; he would rather 
hunt his venison for himself. He would offer but 
two pounds for a pound of venison. But as, at this 
rate, the number of his customers would be greatly 
diminished ; and as every person would use less fish 
than before, he would find it difficult thus to dispose 
of the results of his labor, and would be obliged to 
offer it on more favorable terms, say two and a half, 
or three pounds, for a pound of venison : thus, with 



22 OF EXCHANGEABLE VALUE. 

a day's labor, he would procure less venison, and the 
hunter less fish. That is, the evil would be shared 
between them; and thus, an injury to one, is an in- 
jury to all. Thus, other things being equal, the less 
the supply the greater is the exchangeable value. 

3. Suppose the labor necessary for procuring fish 
remain the same, but that, from some cause, twice 
as many persons desired fish as before. Suppose 
that every person desired five pounds, but that, 
there was only enough to supply half the population 
with this quantity. Then there would arise a compe- 
tition among the buyers, and he who obtained this 
quantity must obtain it by overbidding his neighbor. 
Thus, fish would command a larger amount of ve- 
nison in exchange than before ; that is, the exchange- 
able value of fish would rise, and it would continue 
at this point, until the demand decreased, or, until a 
sufficient number of men devoted themselves to fish- 
ing, to furnish enough to reduce it to its mean ex- 
changeable value. Thus, the greater the demand, 
the greater the exchangeable value. 

4. Suppose, that, while the labor of taking fish con- 
tinued as before, the number of purchasers was from 
any cause diminished, so that, while there was fish 
enough caught to supply every person with five 
pounds, only half the population wanted any. In 
this case, as a large residue would at the close of ev- 
ery day, be left on the fisherman's hands, there 
would be a competition among the sellers ; and each 
one would be desirous of disposing of his stock at a 
diminished price, rather than lose it altogether. 
Hence, he would offer to exchange it for a less 
amount of venison than before; that is, the exchange- 
able value offish would fall. It would remain at this 
point, until, either the demand arose to its natural 
rate; or a sufficient number of persons turned their 
attention to some other occupation, to reduce the sup- 
ply to a level with the demand. That is, the sup- 
ply being the same, the less the demand, the less 
the exchangeable value. 



OF EXCHANGEABLE VALUE. 23 

It is the operation of these principles that keeps 
the supply of any article throughout the world al- 
ways equal to the demand: and, it is surprising to 
observe, with what accuracy this effect is produced. 
In the largest cities, there is always just enough 
butcher's meat and vegetables, and clothing, to sup- 
ply the wants of the inhabitants, and no more. The 
moment the price of an article falls below cost, it 
ceases to be produced, until the price rises. As soon 
as it rises above ordinary profit, capital and labor 
are directed to it, and it is produced in sufficient 
quantity to meet the unusual demand. Thus, also, 
we see why the high price of any article is common- 
ly followed by a low price of the same article, and 
the contrary. When the price of any article is low, 
men leave off this kind of production in too great 
numbers, and henee follows a comparative scarcity 
of the product which they furnish. When the price 
is high, men rush, in too great numbers, into this 
sort of production, and hence arises a temporary 
glut, and a depreciation of its exchangeable value. 

Again: It will be seen that this variation in the 
exchangeable value of any article, is dependent greatly 
on its perishableness. An article which is not liable 
to be destroyed by keeping, will neither fall so rapid- 
ly, nor so low, by either a diminution of demand, or 
an increase of supply, as one which is, in its nature, 
rapidly perishable. Thus, iron may be kept for years, 
without decay; and hence, its exchangeable value 
cannot greatly vary, from increase of supply or de- 
crease of demand : that is, it is an article not liable 
to great or sudden fluctuation. On the contrary, 
fish, fruits, and articles of this nature, very often, in 
the course of a few days, vary one or two hundred 
per cent. 

Another source of variation in the exchangeable 
value of products, is the time necessary for their pro- 
duction. When any amount of a commodity may 
be produced on demand, its rise of price will not 
keep pace with the diminished supply; because^ ev- 



24 OF EXCHANGEABLE VALUE. 

ery one will know that, by waiting, he can be pro- 
vided with it at a reasonable price. Thus, a small 
rise of price in a manufactured article, when the ma- 
terial is abundant, will cause the quantity produced 
to be greatly increased; hence, the rise is never ex- 
cessive. But when a long time is necessary for the 
production of an article, and it is an article of prime 
necessity, the rise of price is frequently great. 

And again : It will be seen, that, so far as the seller 
and the buyer are concerned, these variations balance 
each other. When products rise on the merchant's 
hands, he charges an additional price : when they 
fall, he is obliged, frequently, to sell at a reduced 
profit, or even to sell below cost. The gain, in one 
case, makes up for the loss in the other. Hence, as 
no one sympathizes with the merchant, when he 
sells at a loss, no one should complain, when he 
sells, for a short time, at more than an ordinary 
gain. 

If, now, we sum up what has been said, we shall 
come to the following general conclusions: 

1. Cost; that is, labor bestowed; is the founda- 
tion of exchangeable value, and from this, it can 
never, for long periods, materially vary : that is, an 
article can always be had for what it costs to pro- 
duce it; including in this, the ordinary profit to the 
producer. Notwithstanding this, there will, how- 
ever, arise various fluctuations, depending upon the 
following circumstances : 

Other things, then, being equal — 

2. The greater the supply, the less the exchangea- 
ble value. 

3. The less the supply, the greater the exchangea- 
ble value. 

4. The greater the demand, the greater the ex- 
changeable value. 

5. The less the demand, the less the exchangeable 
value. 

6. And, in general, cost being fixed, exchangeable 
value is inversely as the supply, and directly as the 
demand. 



OF PRODUCTION. 25 

7. Or, still more generally, at any particular time, 
exchangeable value will be as the cost, plus the effect 
produced by the variation in supply and demand. 

Hence, wealth consists of all objects which have 
an exchangeable value. 

Exchangeable value is slightly distinguishable 
from price. The first, is the power which any ob- 
ject possesses of procuring for us any object whatev- 
er. The second, price, is the power that it has to 
procure for us one particular object ; that is, money. 

Of Production. From what has been said, it is 
easy to explain the nature of Production. It is the 
act by which we confer a particular value upon any 
object whatever, or by which we give to any object 
its adaptedness to gratify desire. We can neither 
create nor annihilate any thing. All that we can do, 
is, to modify what already exists. When we so mo- 
dify any thing, that it is capable of gratifying a de- 
sire which before it was not capable of gratifying, 
our so doing is called production. 

The modifications which objects need, in order 
to render them capable of gratifying desire, are va- 
rious. Sometimes the elements of the substance, 
sometimes its form, and sometimes its place, require 
to be changed. Whenever human industry accom- 
plishes any of these results, it is called production ; 
the person who exerts this agency is called a produ- 
cer ; and the substance itself, on which this agency 
is exerted, is called a product. 

In some cases, we find the substance, as, for in- 
stance, ore in the mine, or stone in the quarry, in its 
natural state; in others, we receive it from those who 
have imparted to it one value, and we add to it an- 
other. The material which, in either case, we obtain 
for the purpose of combining it with our own indus- 
try, and forming it into a product, is called capital; 
and, after the labor has been exerted, and the value 
created, it is called a product. Thus, the same arti-* 
cle may be product to one, and capital to another, 

Q 



26 EXCHANGE DISTRIBUTION. 

Leather is the product of the currier, and the capital 
of the shoemaker. 

The term capital is not merely applied to the mate- 
rial on which industry is to be exerted, but also to all 
the instruments by which human industry is assisted ; 
as well as to whatever is necessary to the support of 
that industry. 

Of Exchange. I have said, above, that the mode 
of every man's industry is decided by his individu- 
al tastes and circumstances. It is commonly, how- 
ever, confined to the creation of one kind of product, 
inasmuch as it is thus vastly more available. His 
desires, on the other hand, are as innumerable as the 
objects created to gratify them. He creates but one 
value and he wants a thousand. Hence, he can be 
gratified by means of no less than nine hundred and 
ninety-nine exchanges. He thus parts with various 
portions of the value which he has created, for the 
sake of obtaining the values which others have crea- 
ted. Hence the necessity of universal and cease- 
less exchange. Hence also the reason why so large 
a portion of mankind devote themselves to the busi- 
ness of effecting exchanges. Those who do so, are 
called merchants. Those who are employed in the 
transportation of wares or merchandise by sea or by 
land, are all engaged in effecting the same object. 

Distribution. In even the very first stages of so- 
ciety, it is found that the productive result of human 
power is greatly increased by union of effort and di- 
vision of labor. Ten men, laboring together, can ac- 
complish much more than ten men laboring separate- 
ly. Specially is this the case where the various 
parts of a process are divided, and each one perforins 
that part for which he is best adapted. And, as cap- 
ital accumulates, it is commonly the case, that one 
who owns the capital, unites in production with an- 
other or others, who perform the labor. When the 
product is realized, and the gains are to be divided, 
some equitable law is to be adopted, in the distribu- 
tion. Different laborers are entitled to different wa- 



CONSUMPTION — DIVISION OF SUBJECT. 27 

ges: and there are just proportions to be observed be- 
tween the wages of labor and the wages of capital. 
The principles of this adjustment are treated of, by 
Political Economists, under the head of Distribution. 

Cotisumption. Suppose, now, the value be crea- 
ted, and brought within the reach of him who desires 
it ; he uses it, and, in the very act of use, its value is 
destroyed. We exchange labor, or money, or wheat, 
for fuel ; we use the fuel in our fire places, and its 
value is destroyed. We purchase bread; We eat it, 
and its value ceases forever. A baker purchases 
flour: and makes it into bread; the flour ceases to 
be flour: its value, in this respect, is gone forever. 
This act, by which we annihilate any particular 
value, is called consumption. It is exactly the op- 
posite to production. Sometimes the utility is de- 
stroyed, with no other result than merely the grati- 
fication of desire. Such is the case with fire-works, 
shows, and amusements of almost every sort. At 
other times, the value or utility is destroyed; but it 
re-appears, in another and much more valuable form. 
Thus, a side of sole leather is cut up into soles, for 
shoes : its value, as a side of sole leather, is destroyed 
forever ; but its value re-appears, in another form, 
and with an increased exchangeable value. The 
food which we eat, disappears ; but its value re-ap- 
pears, in re-animated health and vigor, by which we 
are prepared for subsequent labor. The former is 
termed unproductive^ the latter, productive consump- 
tion. 

The whole subject of Political Economy, may be 
therefore divided into four parts. 

The First Part treats of Production, or the laws 
which govern the application of labor to capital in the 
creation of value. 

The Second, or Exchange, treats of the principles 
which govern men, when they wish, by means of 
their own labor, to avail themselves of the labor of 
others. 

The Third, or Distribution, treats of the laws by 



28 DIVISION OF SUBJECT. 

which those who have united in the creation of a 
product, receive, respectively, their portion of the 
result. 

The Fourth, or Consumption, treats of the laws 
which should govern us in the destruction of value. 

Each of these subjects will be treated of, in the 
above order, in the following work. 



BOOK FIRST. 



PRODUCTION. 

It is obvious that when man was first created, 
there existed nothing hut this earth, with its various 
substances, their qualities and relations; and man, 
with his various physical, intellectual, and moral 
powers. The difference between the present state of 
man and of the universe around him, and the ori- 
ginal state, consists in this ; that the qualities and 
relations of things have now been discovered, and 
rendered available to the service of man ; and the in- 
tellect of man has been cultivated, and his skill im- 
proved, so that he is able, more successfully, to avail 
himself of these qualities and relations. And it is 
also obvious, that this change in the external world 
has been produced by the physical and intellectual 
faculties of man; that is, by human industry. The 
whole wealth of the world has been created by the 
union of human industry with the materials which 
God had originally spread around us. Hence, all 
that is necessary to the creation of wealth, is capital 
and industry. But, it is also obvious, that the ap- 
plication of industry to the materials around us, that 
is, capital, has not been at all times either equally 
strenuous, or equally successful. There must, there- 
fore, exist some rules, by which this application qf 
industry to capital is governed, and some conditions 
under which it is more successfully exerted, than un- 
der others. 

The subject of Production is, therefore, naturally 
divided into three parts. 1st. Capital. 2d. Indus- 
try. 3d. The principles by which the application of 
industry to capital is governed. 
3# 



30 
CHAPTER FIRST. 

OF CAPITAL. 

First. The nature of Capital. The word capital 
is used in two senses. 

When used in relation to product, it means any 
substance on which industry is to be exerted. After 
that industry has been exerted, it then becomes pro- 
duct. Thus, leather is the capital of the shoema- 
ker, and shoes are his product. 

When used in relation to industry, however, it 
has a much wider signification. It then signifies the 
material on which industry is about to confer value, 
that on which it has conferred value, and the instru- 
ments which are used for the conferring of value, as 
well as the means of sustenance, by which the being 
is supported whilst he is engaged in performing the 
operation. The capital of an individual, if it be ex- 
amined, will be found to be composed of all these. 
Thus, also, the capital of a nation is composed of 
raw material, of articles ready to be consumed, of 
buildings, ships, manufactories, and also of the va- 
rious substances, by which human life is prolonged 
and rendered desirable. 

Second. The forms of Capital. Hence it must 
be seen that the forms of capital must be as various 
as the various employments of man. 

1. The Farmer possesses seed, manure, breeding 
animals, &c. 

The Manufacturer possesses cotton, wool, flax, 
iron, leather, wood, and, in general, all the material 
on which, according to his particular calling, he de- 
sires to exert his industry. 

The Merchant possesses sugar, tea, coffee, iron, 
&c., or the various substances to which, by transpor- 
tation, he has added, or to which he intends to add, 
value. 



CHANGES OF CAPITAL. 31 

2. But, in order to effect this intended creation of 
value, it is found that intermediate agents must, in 
all these cases, be employed. A farmer could not 
reap with his fingers, nor a miner dig with his hands, 
nor a manufacturer labor without tools. All these 
instruments, the use of which is necessary to the 
creation of value, are, therefore, also termed capital. 

Thus, the ploughs, harrows, spades, carts, and 
working animals of the farmer, are a part of his cap- 
ital. To the same class also, perhaps, belongs his 
land. 

The axes, planes, hammers, of the mechanic, and 
the buildings and machinery of the manufacturer, 
are their capital. - . 

Under this division of capital may also be includ- 
ed the ship of the merchant, the wagon of the team- 
ster, and the railroad and locomotive of the proprie- 
tor. 

3. But, besides all this, all these several persons 
must be fed and clothed, whilst they are exerting 
the industry by which value is given to these various 
products. Hence, under the head of Capital, must 
be comprehended all the various kinds of food, the 
clothing, and houses, which are necessary, in order 
to give sustenance to a human being. These are 
generally the same, in all kinds of industry. 

4. But, besides all this, every individual, in each 
of these departments of human industry, will retain 
some portion of the product which he has created, 
but which he is ready to part with for something 
else. The farmer has grain, which he has raised; 
the manufacturer, cloth, which he has fabricated; 
the merchant, commodities, which he has imported, 
or bought for sale. These form another item of cap- 
ital. 

Third. Of the changes which Capital undergoes. 
From what has been already said, it is evident, that 
capital derives its value from labor, and that the ef- 
fect of labor exerted, is to produce some change in 
it. Hence, capital, in every industrious country, 



32 CHANGES OF CAPITAL. 

must be always undergoing changes ; and hence, al- 
so, it frequently re-appears, in forms very different 
from those in which it at first existed. The form 
however, is of no consequence, if a superior value 
be the result. Political Economy, unmindful of the 
form, looks only at an augmentation, either of the 
amount, or of the degree of value. 

1. The material undergoes changes. 

The seed and manures of the farmer are changed 
into vegetables, and these again into the grain of the 
harvest. 

The cotton and wool of the manufacturer are 
changed into the fabrics which he produces. The 
wood and nails of the carpenter are changed into 
houses. 

The commodities of the merchant undergo changes. 
He exports cotton, rice, wheat, or manufactures ; and 
imports calicoes, silks, wine, hardware, &c. 

2. The instruments, or machinery, employed by 
these several classes of persons, undergo changes. 
These several instruments, in the course of produc- 
tion, are gradually destroyed, or consumed. The 
plough and cart, and animals of the farmer, the tools 
of the mechanic, the machinery of the manufacturer, 
and the ships and vehicles of the merchant, are worn 
out and rendered worthless. But if they have been 
profitably used, they have re-appeared, in the in- 
creased value, which they have conferred upon the 
various objects upon which they have been em- 
ployed. 

3. The various kinds of food, clothing, and shel- 
ter, necessary for the existence and comfort of the 
human being, are also changed. They are consum- 
ed, from time to time, and their value re-appears, in 
that new vigor imparted to his body and mind, 
which forms a fresh capital, to be employed again 
in the work of production. 

4. And lastly: The mature product of every la- 
borer is constantly changing. As soon as he has cre- 
ated a product, he is anxious to dispose of it to some 



INCREASE OF CAPITAL. 33 

one else, that he may invest its increased value in 
some other material which he may again, with in- 
creased advantage, unite with industry. As soon as 
the farmer has raised grain or fat cattle, he wishes 
to dispose of them, that he may invest their value 
again in seed, or manure, or agricultural improve- 
ments. As soon as the manufacturer has finished 
his fabric, he exchanges it for the means of subsis- 
tence, materials, or machinery; and so of the mer- 
chant, and of every other laborer. 

We see, then, that capital is undergoing perpetual 
changes, and that the course of these changes is 
constantly from a state of less, to- a state of greater 
value; that is, from a state more remotely adapted 
to the gratification of human desire, to a state less 
remotely adapted to it ; and that so soon as it has 
become precisely adapted to this gratification, its 
change ceases, and it is consumed in some mode or 
other. And if it be profitably consumed it again re- 
appears in some form adapted to create a further in- 
crease of the means of enjoyment. And hence we 
see, that, that country is the most prosperous which 
is the most, rapidly accumulating, by the results of 
its labor, the greatest amount of these ultimate pro- 
ducts, in proportion to its number of inhabitants. 
The greater the share of these products which falls 
to the lot of each individual, the greater are the 
means of physical happiness in his possession. 

Fourth. The increase of Capital. In all these 
changes which we have considered, it is always to 
be remarked, that there is, in the very act of change, 
a destruction of value. He who changes iron into 
steel, consumes the iron, destroys that particular 
value and creates another in its place. He who sows 
wheat, destroys the value of that wheat, for food ; and 
he who spins cotton, destroys the value of cotton 
wool as cotton wool. That is, neither of these sub- 
stances can ever be used again for the purposes to 
which they were before adapted. If, however, the 
industry of the laborer have been skilfully directed, 



34 INCREASE OF CAPITAL. 

the product will have acquired an exchangeable 
value sufficient to replace the original material in ad- 
ditional quantity, and also to repay him for his labor, 
and pay the interest of his capital. The amount of 
difference between the exchangeable value of his ori- 
ginal material, together with his labor, and the ex- 
changeable value of his product, is his profit. The 
annual amount of these profits, is his annual gross 
revenue. The annual amount of these profits in a 
nation, is the gross national revenue. 

It is obvious, that it matters not in what form cap- 
ital re-appears, if it only re-appear in a form bearing 
a greater exchangeable value. The smith exchan- 
ges gold or silver for coal; he burns up his coal, 
and nothing is left but ashes. But it has produced 
an invisible substance, called caloric, by means of 
which he has been able to give such an increased 
value to iron, as will not only replace his gold and 
silver, but also the iron itself, and will also pay him 
for his labor. The farmer exchanges his gold or sil- 
ver for manure, but this manure will so increase his 
harvest, that he will be able to replace his gold and 
silver, and also be abundantly repaid for his labor. 
The principle is the same, in all cases of change of 
capital. It matters not into what we change our 
capital, nor how valuable the substance may be that 
is exchanged, if we only receive, in return, a great- 
er amount of exchangeable value, or that which will 
procure for us a greater amount of objects of desire. 

We see, hence, in what manner nations and indi- 
viduals grow rich. It is by uniting the industry 
of this year to the capital of last year, and, by this 
process, creating an augmentation of capital. This 
augmentation will be either greater or less, in pro- 
portion as our industry has been successful in giv- 
ing additional value to that value which previously 
existed. If we destroy a value, and produce another 
only equal to it, we lose our labor. If we destroy 
a value, and re-produce nothing, we lose both labor 
and capital It is only as the value created is supe- 



OF PRODUCTIVE AND UNPRODUCTIVE CAPITAL. 35 

rior to the value of labor and capital consumed, that 
we are enriched. Hence we see, that wealth is ac- 
quired by small, but oft repeated accumulations. 
The gross amount of these accumulations will be 
decided by our skill and industry. But, as from 
this amount our various expenditures must be sub- 
tracted,' our nett revenue will depend not only on 
our skill and industry, but also on our frugality. 
Though a man earn much, yet, if he spend all, he 
will grow no richer. Hence, industry and frugali- 
ty are the great sources of wealth. Nor is this the 
less true of nations. Hence it is, that wars, unne- 
cessarily expensive governments, or high taxes for 
whatever purpose, may keep the most enterprising 
and industrious nation always poor. 

Fifth. Of Productive and Unproductive Capi- 
tal. 

Productive capital is that, which, being in any 
manner united with industry, is in the process of aug- 
mentation. Unproductive capital is that, which, 
not being united with industry, remains, at the end 
of the year, just the same as it was at the be- 
ginning. Money at interest, capital undergoing 
the various transformations effected by industry, 
tilled land, and manufactories in operation, are pro- 
ductive capital. Money lying in coffers, materials 
unsaleable, manufactories unoccupied, and land ly- 
ing waste, are unproductive capital. 

When capital is unproductive, it may be consider- 
ed as losing for us, annually, its ordinary rate of 
interest; because it must have been purchased 
with that which would have yielded that interest. 
Hence it is, that every sound economist is anxious 
to have the whole of his capital productively invest- 
ed. He who acts otherwise, is ignorant of the prin- 
ciples of production, indolent, or slovenly. The 
farmer who allows a heap of manure to lie in his 
farm yard for a year, instead of spreading it on his 
land ; the merchant who allows his ships to lie idle, 
or his goods to be scattered, unsold, over several 



36 OF PRODUCTIVE AND UNPRODUCTIVE CAPITAL. 

warehouses; or the manufacturer who owns twice 
as much machinery as he is able to employ, are 
annually losing all the accumulation which this 
capital, properly invested, would produce. And still 
more, as we have seen that all gains arise from 
small and successive accumulations, and as almost 
every product is liable to waste, it is manifest that 
habitual negligence of this sort must greatly di- 
minish, if it do not entirely consume, all the nett 
revenue of an establishment. The effort of every 
man should be, to unite every fraction of his capital 
with industry, and to keep it so united, continual- 
ly. Any gain, even the smallest, if it be sure, is 
better than no gain at all. 

From what has been said, it is evident that the 
process of accumulation, in all branches of produc- 
tion, is the same. It will also appear, that where 
capital is free, that is, where there are no restric- 
tions upon the use of it, there can be no great per- 
manent difference in the rate of accumulation, be- 
tween the different modes in which it is employed. 
If the profits of one kind of business are above the 
average rate, other capital will flow into that chan- 
nel. If the profit in any branch of production be be- 
low the ordinary rate, capital will be withdrawn 
from it. If commerce be unusually lucrative, men 
will leave other pursuits and devote themselves to 
commerce, until, by competition, they reduce the pro- 
fits to the ordinary rate. If commerce be depressed, 
men will leave it, until, by the reduction of the sup- 
ply of commercial facilities, the rate of profit is in- 
creased. Rates of profit cannot be rendered perma- 
nently unequal in any other manner, than by op- 
pressive legislation. The differences in profit, in 
the various departments of industry, are, therefore, 
more apparent than real. When profit is sure, it 
is of course less than when it is uncertain. But, 
how much soever individual cases may differ, it will 
be found that the average is, for long periods, very 
nearly equal. 



OF FIXED AND CIRCULATING CAPITAL. 37 

Sixth. Of Fixed and Circidating Capital. The 
capital from which the owner derives profit only by 
exchanging its form or place, is circulating capi- 
tal. Thus, the wares of the merchant, the products 
of the manufacturer, the harvests of the farmer, are 
circulating capital. On the other hand, the instru- 
ments which each of these producers uses, in per- 
forming his various operations, are fixed capital. 
Such are the ships and warehouses of the one, the 
machines and buildings of the other, and the tools 
and land of the third. 

Circulating capital is, in general, that which is 
already prepared for the gratification of human de- 
sire, or that which is in a course of preparation for 
this state. Fixed capital, in general, consists of 
the instruments, or fixtures, which, in some form or 
other, assist us in accomplishing this result. Tools, 
machinery, houses, ships, roads, canals, and im- 
provements on farms, &c, are fixed capital. Circu- 
lating capital is generally rapidly consumed. It is 
commonly an annual product, and subject to an an- 
nual consumption. Fixed capital is not an annual 
product, and may last for a year, a life time, or in- 
definitely. It is, however, still liable to gradual 
decay, which decay must be replaced, or else the 
possessor would find himself growing poorer, inas- 
much as these tools and machinery are the means 
by which his labor is rendered productive. 

The amount of fixed capital employed in some 
branches of industry, is much greater than that in 
others. Some mechanical trades require no more 
fixed capital than a cheap set of tools. Others, as 
large manufacturing establishments, require a large 
fixed investment. In proportion to the amount which 
must be thus employed, must be the amount of ac- 
cumulated property necessary to be possessed by him 
who wishes to employ himself in that particular de- 
partment of industry. Sometimes, by far the great- 
er part of the investment is fixed capital, and it is 
also very great in amount. In this case, it is fre- 
4 



38 OF FIXED AND CIRCULATING CAPITAL. 

quently apportioned among individuals, who each 
subscribe and pay a part of the cost. Such is the 
case with railroads, canals, and works of public im- 
provement, generally. 

There is an obvious tendency, in the nature of 
things, to convert circulating, into fixed capital. As 
circulating capital is annually consumed, it must be 
annually replaced, or mankind, after the first year, 
would all perish. It is replaced by the annual pro- 
ductions of the earth, either vegetable, animal, or 
mineral. But, if the industry of man has been suc- 
cessfully exerted, the amount of annual production 
will be sufficient, not only to supply the ordinary 
wants of the producers, and to repair the waste and 
wear of fixed capital, but also to leave a surplus un- 
appropriated. Now, as this kind of capital is annu- 
al, and as it is also perishable, if it be not used in 
some way, this surplus must be a total loss. If it be 
appropriated to the multiplication of annual capital, 
it will only increase that surplus, which is already 
too great. Hence, it can be usefully employed only 
in the creation of fixed capital. To accomplish this 
result, it is offered in the form of wages, to mechan- 
ics, artisans, and those persons who employ them- 
selves in the manufacture of those articles, in which 
fixed capital consists. Hence, the wages of this class 
of persons will rise, and a portion of them will be 
drawn from the production of circulating capital. 
This might at first be supposed to diminish the 
amount of circulating capital. Such would be the 
result, were it not for the fact, that the very object 
of fixed capital, is, to enable us to create circulating 
capital, with a less amount of labor. A society, in 
which a part of the members are devoted to the mak- 
ing of useful machines, will create a greater amount 
of annual products, than one in which all are de- 
voted exclusively to the creation of annual products. 
Thus, in a short time, the annual surplus is greater 
than before, and a greater number of persons is em- 
ployed in creating fixed capital, and that kind of 



OF FIXED AND CIRCULATING CAPITAL. 39 

fixed capital, which involves, in its creation, a great- 
er amount of expense. It is thus that a society, age 
after age, grows rich, and each successive race of 
men leaves the world better provided with the means 
of production, than it found it. 

This may all be illustrated, by a few very familiar 
instances. A savage, who obtains peltry by his bow 
and arrows, having provided for the food and cloth- 
ing of his family, will, if he be industrious, possess 
a surplus which must now be useless to him. He 
would naturally exchange his surplus for a rifle ; a 
kind of fixed capital, by means of which, his circu- 
lating capital would be greatly increased. This in- 
crease of capital would enable him, besides procur- 
ing better clothes and more numerous conveniences, 
to add to his fixed capital by purchasing a horse, or 
a plough, or by erecting a house. These, in their 
turn, would augment his circulating capital; and 
thus, with every year, his fixed and circulating capi- 
tal would steadily increase. Hence, very soon, there 
would arise a demand for the services of men who 
employed themselves in creating fixed, instead of 
circulating capital. That is, mechanical arts would 
be practised; and the artisans would be, as we find 
that in such a state of society they always are, ex- 
orbitantly paid for their labor. 

Again : Suppose a farmer to enter upon new and 
untilled land. His first care is to produce the neces- 
sities of life, for himself and his family. When this 
is accomplished, he appropriates a part of his labor 
to the creation of fixed, instead of annual capital : that 
is, he erects fences, purchases with his produce, carts 
and animals, builds barns and outhouses, and thus 
renders his farm a much more productive instrument 
than before. With his increasing surplus, he pur- 
chases additional land, if he needs it, andbrings it all 
into such a state of cultivation as he thinks desira- 
ble. By all these means, his annual surplus is ren- 
dered greater, and he is enabled to extend the amount 
of his fixed capital, by building a better house, pur-. 



40 OF FIXED AND CIRCULATING CAPITAL. 

chasing better ploughs, harrows, carts, and various 
machines by which his future labor will be rendered 
more productive. But we see that this could not 
be done by the farmers of a neighborhood, unless 
some portion of them abandoned farming, and devot- 
ed themselves to the creation of fixed capital. 
There would, therefore, arise a great demand for me- 
chanical labor. And as there would hence arise the 
necessity for a great number of exchanges, some por- 
tion of the society must devote themselves to effect- 
ing them; that is, must become merchants. In this 
manner, circulating capital first gives rise to fixed 
capital, and fixed capital increases again the amount 
of circulating capital ; and thus they go on, year af- 
ter year, mutually augmenting each other. 

Thus, also, the merchant, whose business it is to 
augment the exchangeable value of a given amount 
of circulating capital by transportation and ex- 
change, produces, by his operations, an annual sur- 
plus. This he adds to his former capital, for a 
while, but soon purchases fixed capital, such as 
ships, &c, to facilitate his operations. When he 
has enough of these, and as large an amount of cir- 
culating capital as he wishes to employ, he then be- 
gins to invest his surplus either in some permanent 
works of public improvement, as bridges, roads, 
canals, or in something which, besides facilitating 
the productiveness of the society, will also yield him 
a revenue, or else he employs it in manufactures, 
according to the condition of the country, and its 
natural demands and facilities. 

From what has been remarked above, we may 
easily see the natural course which a nation takes, 
in the progressive accumulation of wealth. Its first 
productions are, circulating, or annual capital ; the 
products of the field, of the forest, or of the ocean. 
Next follow improvement in permanent conve- 
niences, and the construction of instruments for ag- 
ricultural production ; then the exchange of its own 
products for other circulating capital, or for the an- 



OF FIXED AND CIRCULATING CAPITAL. 41 

nual necessaries of life ; and then the exchange for 
fixed capital of the most necessary kind. Tims, the 
Dutch, on their first settlement in this country, used 
to import their bricks from Holland. Commerce 
being thus commenced with an older country the 
colonists soon engage in it themselves, and invest a 
large portion of their annual surplus in ships. Be- 
fore manufactures had commenced in this country, 
previously to the Revolution, the commerce of the 
colonies had become already extensive. All these 
changes prepare the way for the investment of capi- 
tal in manufactures, which, in their proper and nat- 
ural time, must be established: and when that time 
arrives, they will be established, without the aid of 
legislative enactment, and according to the very laws 
by which accumulation is governed. 

From what has been remarked, we also see that 
the advantages which we enjoy over savage nations 
result, principally, from the possession of a greater 
amount of fixed capital ; or, in other words, the per- 
manent results of pre-exerted industry. That advan- 
tage consists in this, that this capital, besides afford- 
ing to its owners the ordinary rate of profit, enables 
men to produce at a much cheaper rate; that is, at a 
less expense of labor. Thus, a cotton factory, be- 
sides affording a fair profit to the owner, enables 
him to do, by one hour's labor, what would other- 
wise require the labor of days or of weeks. By all 
this difference, therefore, we have the advantage 
over savages, or over those who went before us. 
Hence, a nation, which does not possess the results 
of pre-exerted industry, must be poor, unless its 
natural advantages enable it to avail itself of those 
of other countries.^ 



* Or, in other words, as it is well expressed by Mr. Carey, in 
his late work on this subject; the quality as well as the quantity of 
labor, enters into the account, whenever we speak of the exchangea- 
ble value of the products which it has created. The quality of 
labor is always in proportion to the amount of pre-exerted indus- 
try with which it operates. 
4* 



42 OF MONEY. 

Hence, we also see the reason why the traffic be- 
tween savage and civilized nations is so greatly in 
favor of the latter . The latter are enabled to offer 
in barter that which is of inestimable value to the 
savage, but which the civilized man can produce 
with a very small portion of labor. An axe would 
cost a savage the labor of weeks or of months, while 
a smith in New England would make it in a few 
hours. Hence, it is not wonderful that the one 
should be willing to give for it vastly more than it 
costs the other. And, on the other hand, the com- 
modities of the savage are of very little value to him, 
but of high value to the mechanic or artisan. Hence, 
the gain to him also is great. An Indian who ex- 
changes peltry, which is worth in New York fifty or 
one hundred dollars, for a rifle, powder and bullets, 
has improved his condition, by means of the pur- 
chase, really more than the gunsmith, who has made 
so exorbitant a profit. 

Seventh. Of Money. It will be observed that, 
thus far, I have not mentioned money as an item of 
capital. Although this is not the place in which to 
treat of the functions of money, yet it may be proper 
here to add a single remark concerning it. 

Money forms but a very small part of the capital 
of any country. Every one may easily judge of this, 
from his own observation. How very small a por- 
tion of any one's possessions is in money. And if this 
be true of every individual separately, it must be 
true of all the individuals collectively. 

The sole use of money, is to facilitate exchanges. 
It is an instrument for the saving of labor, and for 
the performing of labor with greater accuracy. Of 
this, any one may convince himself in a moment, if 
he will imagine two cases, in the one of which he 
was obliged to make several exchanges without 
money, and the other in which he could make them 
with it. 

Money gains nothing by exchange, but rather loses 
in value, like every other machinery which is worn 



OF MONEY. 43 

out while it accomplishes its object. Hence, it be- 
longs to the class of fixed capital. It is subject to 
slow wear, which must be replaced out of the circu- 
lating capital of the country. 

And, hence, as any country may have a greater 
amount of any particular kind of fixed capital than 
it needs, as, for instance, of any particular kind of 
machinery; and as, when this is the case, it sends it 
abroad, or in other words, makes it an article of ex- 
port, or changes it into circulating capital, so is it 
with money. If a country has more money than is 
sufficient to accomplish its exchanges, it sends it 
abroad, and receives back something that it needs 
more. Such is, permanently, the case in mining 
countries ; and such is, at times, the condition of 
almost every commercial nation. 



44 



CHAPTER SECOND. 

OF INDUSTRY. 

Having, in the previous chapter, explained the na- 
ture and changes of Capital, we now proceed to 
treat of Industry. In doing this, we shall consid- 
er : 1st. The different objects of Human Industry ; 
2d. The forms of Human Industry ; and, 3d. The 
modes by which the productive power of Human In- 
dustry may be increased. 

PART I. 

THE OBJECTS AND FORMS OF HUMAN INDUSTRY. 



SECTION I. 

THE DIFFERENT OBJECTS OF HUMAN INDUSTRY. 

It has been seen, in the previous chapter, that the 
increase of capital ; that is, the means of physical 
happiness to man, can be effected only by producing 
change, of some kind, in capital. But it is evident 
that this change cannot be produced without labor, 
since no valuable change is spontaneous. Hence, 
the great object of human industry is, to produce 
some valuable change in capital. 

Now, the changes, which may be produced in the 
substances of nature, may all be reduced to three ; 
change in the elementary form, change in the aggre- 
gate form, and change in place. To effect one or the 
other of these, all valuable human labor is directed. 

1. Man may change the elementary form of mat- 
ter. The farmer, by means of seed, manure, and 



THE OBJECTS OF HUMAN INDUSTRY. 45 

cultivation, aided by the agencies of the sun and the 
earth, of rain, and the atmosphere, transforms the 
elementary forms of carbon, gases, and water, into 
wheat. The chemist changes the elementary forms 
of acids and alkalies into salts. The dyer changes 
the elementary forms of iron and tannin into color- 
ing matter ; and the case is the same with the va- 
rious other forms of human occupation. 

2. Man may change the aggregate form of mat- 
ter. The cabinet-maker changes the form of a board 
into that of a desk or a table ; the smith, a piece of 
iron into a horse-shoe or a nail ; the mason changes 
a pile of bricks and mortar into a wall ; the cotton 
spinner, a bale of cotton into thread ; the wea- 
ver, this thread into cloth. And, in general, the 
labor oi mechanics and manufacturers is employed in 
effecting changes in the aggregate forms of matter. 

3. Man may change the place of matter. Thus, 
the shipmaster transports a cargo of cotton from 
New York to Liverpool, and brings back a cargo of 
cotton goods, of crockery or of hardware. The 
teamster receives a wagon load of merchandise in 
one town, and transports it to another. The owner 
of a canal boat receives manufactured goods in Al- 
bany, transports them to Buffalo, and brings back to 
Albany, in return, a freight of agricultural produce. 
The agent of a railroad receives a hundred boxes of 
merchandise in Manchester, and transports them to 
Liverpool. And thus, also, a large number of the 
inhabitants of every populous town derive their sub- 
sistence, and frequently grow rich, simply by trans- 
porting wares and merchandise from one part of the 
town to another. 

These divisions, in general, correspond with the 
agricultural, mechanical and commercial depart- 
ments of human industry. I have adopted a differ- 
ent terminology, simply for the reason that it seems 
to me to form a more generic and better limited di- 
vision, and one more conformable to the facts in the 
case. 



46 THE OBJECTS OF HUMAN INDUSTRY. 

1. Concerning these divisions, it is proper to re- 
mark, that, though these are the various objects of 
human industry, yet it frequently happens that, he 
who labors in one, is also obliged to labor in one or 
both of the others. Thus, the farmer who raises a 
crop, is obliged to transport the seed to the field, and 
frequently to transport his harvest to market. The 
cabinet-maker who manufactures a table, may trans- 
port his materials from the lumber yard. The engi- 
neer, on the railroad, is obliged to change the ele- 
mentary form of wood, in order to produce the calo- 
ric, necessary to move his locomotive. We desig- 
nate the class of laborers to which a man belongs, 
by the ultimate object which he has in view, in ex- 
ercising his profession. 

2. Each one of these forms of industry is equally 
important in conferring intrinsic value upon sub- 
stances ; that is, in giving them capacity to gratify 
human desire. Thus we see that the ore in the 
mine has no power to gratify desire, until it is made 
into iron or steel. The steel is valueless for the 
purpose of cutting, until it is transformed into a 
knife, an axe, or some cutting instrument ; and, if I 
want to make a pen in New York, a knife is ut- 
terly valueless to me for this purpose, while it re- 
mains in Sheffield or Liverpool. Unless these sev- 
eral values are all conferred upon it, it would be of 
no service to me. Hence, in purchasing a knife, I 
pay for them all, and as willingly for one as the 
other. 

3. Hence we see how incorrect is the notion some- 
times advanced, that all wealth is the production of 
one or of two, and not of all these forms of human 
industry. All these changes must be effected in al- 
most every article which we consume, and if either 
of them were to be suspended, our desires would not 
be gratified, and the other two must also be discon- 
tinued. He who transports flour, performs an act 
of as essential importance to the sustentation of the 
human race, as he who raises wheat. He who 



THE OBJECTS OF HUMAN INDUSTRY 47 

brings a knife from Liverpool to me, performs a la- 
bor as important to me, as he who manufactures the 
knife ; for, if it were three thousand miles off, it 
might, for all the purposes for which I want it, as 
well not be in existence. And yet more, if one of 
these forms of labor should cease, the others must 
soon cease with it. Of what value would wheat or 
wool be to the farmer, if they could not be transport- 
ed from his farm 1 And again : what gain could 
be derived from either, if there were no means of 
grinding the one, or of manufacturing the other? 
Hence we see that all the forms of industry mutual- 
ly support, and are supported by, each other ; and 
hence, also, we see that any jealousy between differ- 
ent classes of producers, or any desire on the one 
part, to obtain special advantages over the other, 
are unwise, and, in the end, self-destructive. The 
fact is, that if left to themselves, they all flourish, 
and they all suffer together. Nor can either one be 
depressed, for any considerable period, without in- 
juriously affecting both the others. 

These various forms of human industry enter, 
in different degrees, into the value of different arti- 
cles of use. For instance, butchers' meat and green 
vegetables derive almost their whole value from the 
first kind of labor, as they require very little modifi- 
cation, and will bear but short transportation. On 
the contrary, salted provisions may derive a large 
portion of their value from change of place. Cloth- 
ing, cutlery, and what are commonly denominated 
manufactures, derive the greater portion of their va- 
lue from change in the aggregate form. The ori- 
ginal material constitutes, in general, but a small 
part of their price, and, not being of great bulk, their 
transportation is not very expensive. The steel that 
would make a pair of razors, and the cost of trans- 
porting them from Sheffield or Paris to New York, 
would form but a very small portion of their price. 
On the contrary, bulky articles, such as coal and 
iron, derive a very large portion of their cost from 



48 THE OBJECTS OF HUMAN INDUSTRY. 

transportation. Coal, that has scarcely any ex- 
changeable value in the coal mines of Pennsylvania, 
is sold for eight or ten dollars a ton in Providence. 
And all the labor employed upon it, is that which is 
necessary for breaking it in pieces, and removing it 
from its bed to the house of the consumer. 

As, however, the human race is scattered over the 
face of the globe, and as their wants in all latitudes 
are so nearly the same, while no country affords facil- 
ities for supplying more than a very small number of 
these wants, it is evident that the labor employed in 
change of place must, in civilized countries, be the 
most universal, and must enter essentially into the 
greatest number of commodities. Of this every one 
will be convinced, who will take any article of dress, 
of furniture or of food, and consider the amount of 
transportation that has entered into its production ; 
and, specially, if he take into account the transporta- 
tion which has entered into the formation of the in- 
struments by which it had been produced. The same 
truth is also illustrated by the fact, that whole na- 
tions, with very small natural advantages, as Hol- 
land and Venice, have in a short period, become im- 
mensely rich, merely by conferring change of place 
on the merchandise and productions used by other 
nations. Water communication, in the early sta- 
ges of society, greatly diminishes the cost of trans- 
portation, and, of course, increases the facilities 
of exchange. It is on this account that the first 
settlements of nations arc always either on the 
shores of the ocean, or along the banks of navigable 
rivers. 

It may also be worthy of remark, that, thus far, 
in the progress of society, the ingenuity of man has 
been more successful in devising means for increas- 
ing the productiveness of labor in the second and 
third, than in the first kind of human industry. 
Improved agricultural utensils, a better knowledge 
of the nature of soils, and of the different kinds of 
grain and edible vegetables, and of manures have 



THE OBJECTS OF HUMAN INDUSTRY. 49 

added considerably to the quantity of product that 
can be raised by a given amount of labor. But 
this increase bears no sort of proportion to that ef- 
fected by the use of the machinery in the case of the 
cotton manufacturer, and by the use of the locomo- 
tive and many other forces. It is, doubtless, wisely 
ordered that it should be so. Agricultural labor is 
the most healthy employment, and is attended by 
the fewest temptations. It has, therefore, seemed to 
be the will of the Creator that a large portion of the 
human race should always be thus employed, and 
that whatever effects may result from social im- 
provement, the proportion of men required for tilling 
the earth should never be essentially diminished. It 
is also to be remarked that division of labor, which 
so greatly increases the productiveness of human 
industry in the other modes of production, can be 
applied but in a small degree to agriculture. No 
man can devote himself exclusively to ploughing, 
sowing, or reaping ; because, only a small part of 
the year can be employed in either of these occupa- 
tions. The farmer must, therefore, practice them 
all, at different times ; and, of course, every farmer 
must be able to perform not one, but all the several 
operations required in his trade. This forms anoth- 
er reason why the increase of productiveness of hu- 
man industry, in this department of labor, has not 
kept pace with that which has been witnessed in 
manufactures and commerce. 



SECTION II. 

THE DIFFERENT FORMS OF HUMAN INDUSTRY. 

Industry is any form of human exertion employed 
in the creation of value. This, of course, includes 
exertion, both of body and of mind. 

The object of industry, as we have seen, is to pro- 
5 



50 THE FORMS OF HUMAN INDUSTRY. 

duce change of some sort ; since change is necessa- 
ry, either to the creation or to the increase of intrin- 
sic value, and is always necessary to the existence 
of exchangeable value. 

We have also seen that all the changes which hu- 
man industry can effect in matter, may be reduced 
to three, namely : Change in elementary form ; 
change in aggregate form ; and change in place. 

But when man puts forth exertion to effect change, 
it is not any change at random, but some specific 
change which he has directly in view. Were it 
otherwise, his labor would be worse than useless, 
and, like the effort of a maniac or an idiot, would, in 
nine times out of ten, destroy, instead of creating 
value. 

It is also evident that the changes which can be 
effected in matter, are not produced at random, but 
in obedience to certain laws. If we wish to kindle 
a fire, it is not any kind of effort that will do it, but 
effort exerted in obedience to the laws of combustion. 
If we wish to raise wheat, it is not every kind of la- 
bor that will do it, but labor exerted in obedience to 
the laws of vegetation. And so, in general, if we wish 
to effect either of the three kinds of change mention- 
ed above, we must act in obedience to those laws of 
the Creator, to which this kind of change has been 
subjected. 

Again: Supposing the laws of nature, in respect 
to a particular change to be known, it is also neces- 
sary to know the manner in which they may most 
successfully be applied to the accomplishment of a 
particular result. The laws of combustion and of 
gravitation may be known, and yet a very impor- 
tant effort of human ingenuity may be required, be- 
fore we ascertain the best method of so applying 
them, as to be able to construct a good fireplace. 
The expansive power of steam was known long be- 
fore a steam engine was invented ; and still longer 
before any application of it was devised by which 
it might be used for propelling vessels through the 



THE FORMS OF HUMAN INDUSTRY. 51 

water. And still further, a man may understand 
the general laws of physiology, and yet be unable to 
apply them to the cure of diseases. A man may un- 
derstand the general principles of jurisprudence, and 
yet not know how to avail himself of them, in such 
a manner as to procure either defence from injury, 
or redress of grievance. 

But suppose this also to be known : it still re- 
mains for us to put those means into operation, by 
which, in obedience to the laws of nature, a given 
result may be accomplished. He who understands 
the laws of combustion and gravitation, and the 
mode of their application, may now set himself to 
work, according to these laws, and build a chim- 
ney. He who understands the laws of hydrostatics 
and the mode of their application, may now set him- 
self to work, to build a boat. It is, however, true 
that there would still be required a certain degree of 
skill and dexterity, before he could perform either 
of these operations well ; although he now could 
perform them, in some way or other. This skill 
can be acquired only by practice ; and the power of 
acquiring it, is, in general, very universally bestow- 
ed upon men. 

From what has been said, it is evident that the 
industry of which man is capable, may assume three 
different forms, namely : Industry of discovery or in- 
vestigation ; Industry of application or invention ; 
and Industry of operation. 

1. Industry of Discovery or Investigation. Under 
this class of laborers, are to be comprehended those 
who discover the laws of nature, and those who 
make them known to mankind, after they have been 
discovered. Newton labored in this department, 
when he discovered the laws of gravitation, optics, 
and of the motions of the heavenly bodies ; Frank- 
lin, when he discovered the laws of electricity ; and 
Sir Humphrey Davy, when he discovered the alka- 
line bases, and the laws of their combination. The 
labor of each of these men was also of the same 



52 THE FORMS OF HUMAN INDUSTRY. 

kind, when they made known these laws to the 
public. The labor of those who are called philoso- 
phers, belongs to this class. 

2. Industry of Invention or Application. It is very 
rarely that a simple law can be of any use, without 
some adjustment by which we may avail ourselves 
of its advantages. Hence, a very important depart- 
ment of human industry is that which teaches us 
how to make the application of the principle, so as 
to accomplish a particular purpose. Newton per- 
formed this labor, when he invented the telescope ; 
Hadley, when, by means of the quadrant, he ap- 
plied the laws of light to the measurement of angles; 
Franklin, when he invented the conductor, or light- 
ning rod ; Sir Humphrey Davy, when he invented 
the safety lamp ; and Fulton, when he invented that 
modification of the steam engine, by which vessels 
may be propelled through the water. 

Under this class, I think, may also be compre- 
hended professional labor, generally. The business 
of the clergyman is to teach us in what manner we 
may avail ourselves of the moral laws of the Crea- 
tor. The lawyer teaches us how to avail ourselves 
of the laws of that civil society, of which we are the 
members. The physician teaches us how to obey 
the physiological laivs under which we are created, 
so that we may be relieved from sickness, or pre- 
served in health. 

3. To the third class of human industry belong 
all those who put forth the physical effort necessary, 
in order to create the values desired. They are the 
laborers who produce those changes, either in ele- 
mentary form, in aggregate form, or in place, of 
which we have already spoken, and they compose 
by far the most numerous class of society. 

It may here be remarked, that two of these forms 
of labor are frequently performed by the same per- 
son. For instance, he who discovers a law, some- 
times also teaches us how to apply it. Thus, as we 
have already shown, Sir Isaac Newton, Franklin, 



THE FORMS OF HUMAN INDUSTRY. 53 

and Sir Humphrey Davy, were both discoverers and 
inventors; that is, they performed both the first and 
the second kinds of industry. Thus, the second and 
the third are also frequently united : that is, the in- 
dividual who labors at a particular operation, also 
invents some machine by which a particular process 
in that operation is improved. Thus, Sir Richard 
Arkwright, a mechanic, invented the spinning ma- 
chinery now in common use ; and, in general, many 
of our most important inventions have been made 
by operative laborers. And there can be no doubt 
that, if a knowledge of the laws of nature were more 
generally diffused throughout this class of society, 
the progress of invention would be inconceivably 
more rapid. I know of nothing which would tend 
so directly to the general improvement of the useful 
arts, as a wide diffusion of the knowledge of princi- 
ples among those whose business it is to employ 
those principles in their daily avocations. 

Although I have arranged the several forms of hu- 
man industry in the above order, I by no means as- 
sert that this is the order in which they actually 
arise among men. The reverse is, on the contrary, 
far more commonly the fact. Men commence by 
creating, at first, the simplest forms of value, and 
those absolutely necessary to their actual existence. 
Still, in order to create these values, with certainty 
and with regularity, they must very soon have dis- 
covered, by experiment, some rules by which the 
process must be conducted. Men would very soon 
discover that stones would not ignite, and that a fire 
could not be kindled in a pool of water. As they 
advanced, by successive experiments, they invented 
tools, by which, without knowing why, they found 
themselves able to accomplish their purposes with 
less labor and with greater success. Thus, a man 
would construct a raft to transport himself and his 
property over a river, before he knew any thing of 
the laws of hydrostatics ; and he would employ a 
wedge, before he understood the doctrine of forces. 
5* 



54 THE PRODUCTS OP HUMAN INDUSTRY. 

The last labor required, is to ascertain the laws by 
which these changes are governed. As soon as this 
is done, a great improvement is at once effected in 
all the former inventions ; and new inventions arise, 
which otherwise would never have been suggested. 
Thus, a knowledge of the laws of combustion has 
greatly improved the construction of instruments for 
warming our houses. A knowledge of the laws of 
hydrostatics, has greatly improved the construction 
of ships. And a knowledge of the laws of steam, 
has given birth to all the machinery connected with 
the steam engine. And, it seems not too much to 
hope for, that the knowledge of the laws of nature 
will be yet so universally diffused, that invention 
shall almost cease to be the work of accident; but, 
that, when an instrument is wanted, men will pro- 
ceed to discover the law and invent the application, 
just as Sir Humphrey Davy proceeded, when he 
was requested to invent the safety lamp. 

OF THE DIFFERENT PRODUCTS OF THE VARIOUS FORMS 
OF INDUSTRY. 

1. The product of operative industry, is a change 
of form or of place in matter, by which its intrinsic 
and exchangeable value is increased. As the exer- 
tion of this labor confers its value, it gives to the 
laborer a right either to the whole, or to an equita- 
ble part of the matter on which it is exerted. This 
right is easily ascertained and enforced ; for the la- 
borer may enforce it, by seizing either on the matter 
itself, or on such part of it as may be sufficient to 
satisfy his demand. 

2. The change, which is thus produced, could not 
be effected by a less amount of labor, than that which 
the laborer has exerted. If a man make a table 
with suitable skill, such a table could not be made 
by any one else with a less degree of skill and a 
smaller amount of labor : and hence, the cost of ta- 
bles must, in the same place and at the same time, 



THE PRODUCTS OF HUMAN INDUSTRY. 55 

be very much the same. Besides this, there is no 
power in tables to multiply themselves. Hence, the 
laborers in this or any other department, have a sort 
of monopoly of this kind of production, inasmuch as 
no one can produce it cheaper, and none but them- 
selves can produce it as cheap. 

But all this is reversed, in the case of the first two 
kinds of labor. For, 

1. The product which the discoverer or inventor 
creates, is immaterial. It is knowledge, or a change 
effected on mind, the immaterial part of man. By 
creating this change, a man does not acquire a 
right to the whole, or to any part of the substance, 
in which the value resides. The substance cannot 
be appropriated, nor can it be divided ; and, were 
this possible, the laborer could make no use of it. 
Nor is the change one which is cognizable by the 
senses of others, but only by the consciousness of 
the person in whom it is wrought. Hence, this 
marks a broad distinction between this and the other 
forms of labor. 

2. Although the discovery of the laws by which 
the changes in matter are governed, may require the 
exercise of the most unusual talent, and may de- 
mand both protracted and most expensive labor ; yet 
these laws may be "promulgated, after they are discov- 
ered, by men of the most ordinary talent. If a man 
discover a law and reveal it to his neighbor, that is, 
create this change in his mind, his neighbor may 
create the same product in an hour, in the minds of 
a thousand persons, and each one of these in the 
minds of a thousand more. And specially, by means 
of the press, this power is multiplied indefinitely. 
There is therefore no ratio between the labor or skill 
necessary to create it, and that necessary to promul- 
gate it after it has been discovered. Hence, he who 
first creates knowledge, has no means of monopoliz- 
ing it ; nor can the exchangeable value be sustained, 
by the consideration that no one could create it, af- 
terwards, with less labor. Hence, as the supply of 
the product can at any moment be inimitably in- 



56 THE PRODUCTS OF HUMAN INDUSTRY. 

creased, it very soon ceases to have any exchangea- 
ble value. 

From these reasons it will be seen, that the ordi- 
nary rules of supply and demand, and cost and la- 
bor, do not enter into view, when we speak of intel- 
lectual products. They can therefore be adjusted 
by no fixed rule. Nevertheless as immaterial pro- 
ducts are of the greatest importance to the prosperi- 
ty of a country, the Political Economist may point 
out the circumstances most favorable to their pro- 
duction, and the rule by which their labor should 
be remunerated. The above considerations are sug- 
gested, in order to explain, why Political Economy, 
so commonly, treats almost exclusively of material 
products. 

It may, however be remarked, that civil society 
observing that immaterial products are necessary to 
the well being of a community, and that those who 
create them, are liable to remain altogether unpaid ; 
has frequently devised means by which some remu- 
neration may be reaped from the exercise of this 
kind of industry. Such are the laAvs of copy, and 
of patent right. By the first of these, an author is 
allowed, for a limited time, the exclusive control 
over the publication of his work ; and by the other, 
the inventor is entitled to the exclusive control over 
the use of his invention. In this manner, both of 
these classes of laborers are enabled to derive some 
portion of benefit from their productions. Were it 
otherwise, all their reward would consist in whatev- 
er of consideration they might obtain in the commu- 
nity, and in the gratification of benevolence from 
the consciousness of having improved the condition 
of their fellows. But, inasmuch as every other man, 
who is usefully employed, obtains these rewards 
also, and receives pecuniary advantage in addition, 
there i? no reason why the intellectual laborer should 
receive only the first, and be excluded altogether 
from the second. 

From what has been said, another difference be- 
tween these two forms of product may be seen. 



THE PRODUCTS OF HUMAN INDUSTRY. 57 

The product of operative labor, being united with 
matter, and being limited in quantity and fixed in 
cost, may be exported to another country, and will 
command a correspondent amount of exchangeable 
value in the products of that country. Hence, a na- 
tion may grow rich, either by agriculture, manufac- 
tures, or commerce. But this is not the case with 
immaterial products. We cannot send abroad a giv- 
en amount of knowledge, and bring back a corres- 
pondent amount of material products. The small- 
est amount of knowledge, is capable of such indefi- 
nite multiplication, that the demand may be instant- 
ly supplied. Hence, a society composed solely of 
philosophers, or inventors, or professional men, 
would never grow rich, but must, if it performed no 
other labor, of necessity starve. Laborers of this 
class add greatly to the value of other labor, though 
their product, if no other were created, would be 
valueless in exchange. They may be compared to 
the steam in an engine, which, when it is combined 
with proper machinery, produces the most surpris- 
ing results, but which, when left to itself, is dissipat- 
ed into air. On the other hand, the separate parts of 
the machinery, though they might be of some use 
as raw material, yet, if the steam were withdrawn, 
would, immediately, become a mere mass of cumber- 
some and valueless lumber. 

Thus, we see that all the classes of laborers are 
mutually necessary to each other. Without a 
knowledge of the laws of nature, we should all be 
savages. Without the skill and labor of the me- 
chanic, there would neither exist the opportunity of 
acquiring knowledge, nor would our knowledge, if 
acquired, be of any practical value. Nothing can, 
therefore, be more unreasonable than the prejudices 
which sometimes exist between these different class- 
es of laborers, and nothing can be more beautiful, 
than their harmonious co-operation in every effort to 
increase production, and thus add to the conveni- 
ences and happiness of man. 



58 



PART II. 

THE MODES BY WHICH THE PRODUCTIVENESS OF 
HUMAN INDUSTRY MAY BE INCREASED. 

It is obvious, that if the capital and number of la- 
borers be at any one period the same, the annual 
amount of product created will be as the amount of 
industry exerted. Were the laborers all sickly, so 
that they could work only for four hours a day, 
there would be but half as large a product created, 
as if they all labored for eight hours a day. If, by 
a palsy, they were all deprived of the use of one of 
their arms, a correspondent decrease of production 
must ensue. On the contrary, if, while the cost of 
their support remained the same, their ordinary power 
of labor could be doubled, there would be twice the 
usual amount of value created. And hence, in gen- 
eral, we see that, other things being equal, just in 
proportion as more labor is bestowed, the desires of 
every one are more fully gratified, that is, he grows 
rich ; and, on the contrary, as labor is diminished, 
the laborer suffers, or grows poor. This result eve- 
ry one witnesses every day. Sick, aged, and idle 
people suffer, because they either do not, or cannot, 
bestow the labor upon capital necessary to create 
an amount of produce sufficient for their subsistence. 

But the physical power of man is extremely limited. 
There is an average amount of fatigue which a hu- 
man being can undergo, which can rarely, and but 
for very short periods, be exceeded. If he be worked 
too hard, he sickens and dies ; and dies probably from 
being overworked more readily and more commonly 
than any other animal. When, therefore, the whole 
physical power of man is employed upon the capital 
which he possesses, this may be considered the nat- 
ural limit of human productiveness. 



INCREASE OF PRODUCTIVENESS. 59 

1. But, it is evident, that if by any means we 
could increase this power ten-fold, there would be a 
ten-fold increase of production. If we could, by 
any means, enable a man, with one day's labor, to 
execute as much change in capital as he could before 
execute with ten day's labor, there would be just 
ten times as many changes effected ; that is, ten 
times as much value created, and ten times as much 
product to be either enjoyed by himself, or to be ex- 
changed for equivalent means of happiness. And, if 
the power of effecting changes be increased in other 
men in the same ratio, the product of the whole so- 
ciety will be increased in the same proportion. This 
is one of the effects produced by the use of nat- 
ural agents ; and hence it is, that, just in proportion 
as they are used, the condition of man is annually 
and rapidly improved. 

2. But this is not all. There are many values 
which are necessary to the happiness and even to 
the existence of man, which he could not create by 
his unassisted powers. Thus, he needs shelter, 
cooked food, and clothing. But he could not, with 
his teeth and nails, cut down a tree and fashion it 
into a cabin. He cannot, by his hands, either cook 
his food, or manufacture a fabric suitable for cloth- 
ing. All these can, however, be done by other 
agents which he can command and control. Thus, 
iron can be made to cut down and fashion a tree, 
fire to cook his food, and a spinning wheel and loom 
can be made to furnish him with clothing. Thus 
we discover the second use of natural agents. They 
enable him to create values necessary to his existence, 
which, without their aid, could never be produced. 
In this manner, an additional power for the cre- 
ation of product is given to human industry. 

3. But this is not all. It is found that a man, by 
devoting himself to one particular pursuit, is able to 
create a vastly greater amount of product in a given 
time, than he could create if he devoted himself to 
several pursuits. Hence, if there are ten products 



60 MODES BY WHICH THE PRODUCTIVENESS 

to be created, by ten men, they will in a given time 
create a vastly greater amount, if each man labors 
entirely upon one, than if each man labors upon 
them all. The product of the whole ten, therefore, 
by such a division of labor, will be greatly aug- 
mented. This is the third method by which the 
productiveness of human industry may be increased. 

We see, then, the modes in which the productive 
power of man may be exerted. 1. Man may, unas- 
sisted, labor to the extent of his physical ability. 
2. He may multiply his power, by availing himself 
of the agents of nature, either to facilitate the 
creation of products, or to create products which 
he could not create himself; or, 3d. He may econ- 
omize his labor, by such arrangements as will en- 
able him, in a given time and with a given amount 
of fatigue, to accomplish a greater amount of pro- 
duction. 

It is, by adopting these means, that the human 
race advances from the savage to the civilized state. 
With nothing but his hands and feet, man could not 
subsist, except in the most temperate climates. His 
food would be wild fruits, and the animals which he 
could run down in the chase. This is the lowest 
point of human wretchedness. It is a laborious and 
incessant struggle to obtain the bare means of pro- 
longing existence. He invents a bow and arrow ; 
this is a natural agent, or a tool by which he avails 
himself of the elasticity of wood. By this simple 
tool, his condition is materially improved. Still, he 
is destitute of most of the comforts, and frequently, 
at times, of the necessaries of life. Hence, in cold 
climates, great numbers of savages every winter 
perish from cold and famine. He next becomes a 
shepherd. Here he avails himself of the use of nat- 
ural agents. The flocks furnish him with wool, 
and the herds with milk. He now begins to taste 
the blessings of a regular and sufficient supply of 
food and clothing. He next becomes an agricultur- 
ist. Here, in addition to the agents formerly em- 



OF HUMAN INDUSTRY MAY BE INCREASED. 61 

ployed, he makes use of the earth, manures, and im- 
plements, and begins rapidly to accumulate capital. 
His wants increase, and a division of labor is neces- 
sary to supply them. He now advances with rapid 
progress, and at every step employs either new 
agents, or else old agents more successfully, divides 
his labor more skilfully, and at length arrives at all 
the blessings of mature civilization. 

If it be asked, how far may this increased produc- 
tiveness of human industry be carried, we answer, 
it is impossible to tell, unless we can ascertain how 
great are the blessings which God has in reserve for 
man. Who can estimate the benefits conferred on 
man by the magnet, or by steam, or by the printing 
press? And what reason have we to suppose that 
the gifts of God are exhausted, or that there are not 
other and more excellent natural agents to be dis- 
covered, or other modes of using those which we are 
already acquainted with, that shall produce yet more 
surprising results than any which we have yet 
witnessed ? Before the discovery of the agents now 
in use, the most vivid imagination could never have 
conceived of the benefits which they have already 
conferred upon society. There is no reason to sup- 
pose, that we are now more capable of fathoming 
the goodness of God, than our ancestors were three 
or four hundred years ago. 

And hence we learn the inconceivable importance 
to a nation, of science, and of the labors of those 
who are devoted to the discovery of the laws of na- 
ture, and to the invention of new modes of applying 
these laws to the service of man. What would be 
the condition of the world at the present moment, if 
the knowledge of navigation and magnetism, and of 
the laws of chemistry were abolished 1 Undiscover- 
ed knowledge is just as rich in the means of human 
happiness, as discovered knowledge. And hence, 
that nation which is cherishing within itself the 
means for availing itself of the benefit of all the laws 
6 



62 THE USE OF NATURAL AGENTS. 

of the Creator, will most rapidly provide itself with 
the comforts and conveniences and luxuries of life, in 
the greatest abundance and at the least possible cost. 
Who can tell the benefit which will result to this 
country, when Geology has revealed to us the rich- 
es which at present remain hidden from our view 
beneath the surface of the soil? 



SECTION I. 

OF THE USE OF NATURAL AGENTS. 

We shall now proceed to consider the several 
means by which the productive power of industry 
may be increased. This section will treat of the 
use of natural agents. 

A natural agent, is any quality or relation of 
things which can be used for the purpose of assist- 
ing us in production. 

Thus, the light and heat of the sun are natural 
agents, without the aid of which we could not cre- 
ate vegetable products. 

Caloric, or artificial heat, is a natural agent, with- 
out which we could neither cook our food, prolong 
our lives in cold climates, give any valuable quality 
to metals, nor create steam for the purpose of ma- 
chinery. Magnetism is a natural agent, by which 
we are enabled, in any part of the earth, to know in 
what direction we are moving. 

The various powers and instincts of animals are 
natural agents, by which we accomplish purposes 
which could not be accomplished without them. 
Thus, the farmer avails himself of the muscular 
power and docility of the ox and the horse ; the 
huntsman, of the fleetness and scent of the hound, &c. 

Wind, the gravitating power of water, and steam, 



THE USE OF NATURAL AGENTS. 63 

are natural agents, by means of which we create 
the momentum necessary to various operations in 
the arts. 

A tool, or a machine, is any combination of mat- 
ter, by means of which we are enabled to avail our- 
selves of the qualities or relations of a natural agent. 
Thus, a lens, or burning glass, is a tool, by means of 
which we concentrate, for useful purposes, the rays 
of the sun. 

A stove or a fire place, is an instrument, or tool, 
by which we avail ourselves of the calorific proper- 
ties of fuel. 

A mariner's compass is a tool, by which we avail 
ourselves of the peculiar quality of the magnetic 
needle. 

A water wheel is a tool, by means of which we 
avail ourselves of the gravitating power of water. 

A steam engine is a tool, by means of which we 
avail ourselves of the expansive power of steam. 

The only difference between a tool and a ma- 
chine is, that the one is more complicated than the 
other. A common hammer is a tool, by means of 
which we avail ourselves of the gravity and density 
of iron, and of the power of the lever. A trip-ham- 
mer, by which large masses of iron are fashioned 
and wrought, is called a machine, but the princi- 
ples employed are, in both cases, the same, only the 
trip-hammer is moved by a natural agent, water or 
steam, while the common hammer is moved by th© 
hand. 

From what has already been said, it will be easi- 
ly perceived, that the qualities and relations of nat- 
ural agents are the gift of God, and, being His gift, 
they cost us nothing. Thus, in order to avail our- 
selves of the momentum produced by a water-fall, 
we have only to construct the water-wheel and its 
necessary appendages, and place them in a proper 
position. We then have the use of the falling wa- 
ter, without further expense. As, therefore, our 



64 OF AGENTS WHICH CREATE MOMENTUM. 

only outlay is the cost of the instrument by which 
the natural agent is rendered available, this is the 
only expenditure which demands the attention of the 
political economist. 

If we reflect upon the various natural agents 
employed by man, we shall see that some of them 
can be used without any tools whatever. Such is 
the case in agricultural labor, with air, and the light 
of the sun. Others require only such simple instru- 
ments, that their effect upon price is not appreciable. 
Thus, a mariner's compass, which would last for 
twenty years, and assist in the transportation of 
half as many millions' value of merchandise, would 
cost but a few dollars. Others are used by few per- 
sons, and for particular and unusual purposes, as 
the lens, or the microscope. It is only those agents 
which require their effect upon machinery of which 
the cost is appreciable, and which are of so general 
necessity, that their use enters into consideration in 
estimating the expenses of production, that require 
to be specially noticed in Political Economy. 

The means most universally required for creating 
change, is momentum, or, as it is commonly called, 
power. Without this, in agriculture, no change in 
elementary form, and, in mechanics, no change in 
aggregate form, and, in transportation, no change in 
place, can be effected. The instruments necessary 
to avail onrselvpc -£ t he natural agents which create 
^.Omentum, or which enable us to use it in particu- 
lar methods, are very numerous and very costly, and 
form a large portion of the fixed capital of man. 
The natural agents which man uses icr this pur- 
pose are, therefore, those which particularly claim 
our attention; and, to these, the remainder of this 
section will be devoted. 

The natural agents connected with the use of 
momentum, may be divided into two classes: 

1. Those which create momentum. 

2. Those which enable us to use it. 



OF ANIMATE AGENTS. 65 

1. Of those which create momentum. 

This class of agents may be subdivided into two 
kinds : 1st. Animate ; and, 2d. Inanimate. 

1. Animate. These are, beasts of draft and bur- 
den, generally. The most common of these are, the 
ox, the horse, and the mule ; others in use in par- 
ticular districts, are the camel, the elephant, the 
dog and the reindeer. 

The subjection of animals to the human will 
marks an era in the progress of civilization ; and 
teaches us that the first important step has been 
taken in the improvement of the condition of man, 
and in the productiveness of human industry. The 
ox and the horse have much greater physical pow- 
er than man. They may also be sustained at a 
much less expense. Their food is the spontaneous 
production of the earth, which, for a large part of 
the year, they gather for themselves, and which re- 
quires no labor of preparation. They need no 
clothing in any latitude, and in the warmer parts of 
the temperate zone, need no shelter. But, in conse- 
quence of his superiority in intellectual endowment, 
man can direct and govern the physical power of sev- 
eral of these animals, and, by attaching them to agricul- 
tural machines, can command that power at his will. 
If, then, by the use of animals, one man can wield a 
physical force equal to that of ten men, he will be 
able to produce, by the labor of a day, ten times as 
much as he could, before the introduction of ani- 
mate agents. He will, therefore, by the same 
amount of labor, produce ten times as large an 
amount of objects of desire ; that is, of means of hu- 
man happiness. He will have a larger surplus to 
employ in fixed capital for the next year, and this 
surplus will be annually increasing, and increasing 
at the rate of compound interest. . He will have a 
larger portion to exchange ; hence, he will be able, 
also, to enjoy a larger amount of his neighbor's pro- 
ducts. He will be able to exchange with a greater 
number of producers ; hence, he will have a larger 
6* 



66 OF INANIMATE AGENTS. 

number of his desires gratified. And when once 
this first step has been taken, capital, unless de- 
stroyed by man's perverse moral dispositions, must 
increase so rapidly, that the mechanical arts soon 
commence, and permanent improvements and intel- 
lectual cultivation will follow in rapid succession. 

In the earlier stages of society, animate power 
must be used for the production of momentum, in 
all the three departments of human industry. In 
the labors of agriculture, it is still employed, and 
must probably be thus employed forever. Noth- 
ing has yet superseded it, and there is reason to 
doubt whether any thing ever will supersede it. In 
this respect, therefore, so far as the means for the 
creation of momentum are concerned, the early and 
the later periods of society remain on a level. The 
improvements that have been made by the introduc- 
tion of other creative forces, have generally been 
connected with the other modes of operative industry. 

2. Of Inanimate Natural Agents. The inani- 
mate agents, most commonly in use, are : The ex- 
plosive force of Gunpowder ; Wind ; The gravitat- 
ing poiuer of Water ; and The expansive power of 
Steam. 

1. Gunpowder is used in the blasting of rocks, in 
hunting, and in war. Its value, in the blasting of 
rocks, is very considerable. By drilling a small 
hole, which may be done by one man in a day, and 
by the use of a few ounces of gunpowder, a force 
may be exerted in an instant, producing an effect 
which, twenty men, for several days, could not oth- 
erwise have exerted. Hence, it is of very great use 
in all works of internal improvement, where rocks 
must be removed, in order to admit the passage of 
railroads and canals. In fact, it is doubtful wheth- 
er many of the most important of these works could 
ever have been executed, but for this agent. Others, 
if the execution of them were possible, must have 
been accomplished at so great an expense, that the 
investment of capital in them would not have been 



OF INANIMATE AGENTS. 67 

profitable, and, of course, it would not have been 
made. 

Gunpowder is also used extensively in war. If 
war be beneficial, or even necessary, gunpowder is 
an agent of the utmost importance ; for, by no other 
means yet discovered, is it possible to destroy so 
many men, with so little physical suffering, and with 
so little personal labor. It has also a moral advan- 
tage over other methods of slaughter, inasmuch as 
the destruction of human life, in this manner, excites 
less sensibly the ferocity of the human heart. On 
this account, wars, since its introduction, have been 
conducted on more humane principles than former- 
ly. It has also been a valuable auxiliary to the 
progress of civilization, since it has conferred on 
civilized, an undisputed mastery over uncivilized 
nations. There has not been, for centuries, any 
danger to Christendom from barbarian invasion. 
Besides, the more energetic are the means of des- 
truction in war, the less is the loss of life in battle. 
Hence, of a given number of combatants in an en- 
gagement, a much smaller proportion is now slain 
than formerly. This might almost give rise to the 
seemingly paradoxical hope, that some means of de- 
struction might yet be invented, so overwhelming in 
its effects, as to put the smallest number of men on a 
level with the greatest, and hence to put an end to 
wars altogether. 

2. Another agent, used for the creation of momen- 
tum, is Wind. Wind, as a stationary agent, is an 
important mechanical power, in countries destitute 
of water power, or of the fuel necessary for the pro- 
duction of steam, or of the capital which must be 
invested in the machinery required in the use of 
more expensive agents. Its principal advantage is 
its cheapness. It costs nothing to create it, and the 
machinery, by which it is applied, is simple, and 
easily constructed. 

The disadvantages of wind, are its uncertainty, 
both in quantity and in time, and the difficulty with 



68 OF INANIMATE AGENTS. 

which it is regulated. In consequence of the irreg- 
ularity of its force, it is impossible to employ it in 
labor requiring delicacy of operation : and, in conse- 
quence of its uncertainty in time, it could not be em- 
ployed where the labor of many persons was de- 
pendant on its assistance. 

As a locomotive power, on water, wind is almost 
universally used in navigation. Though the direc- 
tion, in which it acts, is variable ; yet, nautical skill 
enables us to use it when blowing from almost any 
point whatever. Its variation, in the quantity of 
force, is here also a matter of less consequence, since 
this circumstance can affect the operation to be per- 
formed, only in respect to time. And variation, 
even in this respect, has, in a great degree, yielded to 
science and enterprise. It is astonishing to observe 
with what precision and certainty voyages are now 
made between New York and Liverpool. Hence, 
this agent has, until lately, been universally used in 
the navigation of the ocean. With the inventions of 
Fulton a new era commenced. Steam very soon was 
employed in the place of wind in the navigation of 
rivers and along the sea-board. It was not however, 
until the year 1837 that the experiment was success- 
fully made, of establishing a regular communication 
between Europe and America by means of steam. 
In the May of that year, the steamers Sirius and 
Great Western, the former from Liverpool, the latter 
from Bristol, arrived in New York. Since that time 
passages have continued to be made between the 
above ports Avith great regularity, and thus far with- 
out disaster or accident. It is demonstrated that the 
Navigation of the Atlantic, by steam, is as perfectly 
within the power of man, as the navigation of the 
Thames or the Hudson. Steamers are also at pres- 
ent plying regularly from France and Great Britain 
to every part of the Mediterranean. The British 
Government has lately engaged steamers to sail ev- 
ery fortnight, from London to various dependencies 
in North America and the West Indies. 



OF INANIMATE AGENTS. 69 

3. Another agent, used for the creation of momen- 
tum, is the gravitating power of Water. This is 
used only as a stationary agent. Its advantages 
are, that it is cheap, tolerably constant, and frequent- 
ly, is capable of exerting great mechanical force. 
Its disadvantages are, that it is stationary ; that is, 
that it can be used only in situations where it has 
been created by nature. Hence, it is frequently at 
a' considerable distance from the seaports whence 
the manufacturer derives his supplies, and whence 
he exports his products. In such cases, the cost of 
transportation must be deducted from the profits of 
the establishment, and is of course, to this amount, a 
diminution of their value. 

Water cannot always be commanded in sufficient 
quantity. Very few mill-seats are secure from the 
liability to suffer from the want of water. This is 
a great inconvenience, inasmuch as, in seasons of 
drought, a large number of the laborers must be un- 
employed, and a large portion of the expenses of the 
establishment must be incurred, without yielding 
any remuneration to the proprietor. 

Another disadvantage of water power is, that it is 
liable to danger from inundation. Though this may 
be guarded against, in many cases ; yet, it frequent- 
ly can be done only at an expense which greatly 
reduces the cheapness of the agent. Notwithstand- 
ing these disadvantages, water power will probably 
be always used, where great mechanical force is re- 
quired ; where the machinery to be employed is sim- 
ple, and where the operation does not require the 
greatest possible nicety of execution. 

4. The power, however, most commonly in use at 
present, is Steam. Its advantages are, that it can be 
used to create any required degree of mechanical 
force ; that it is perfectly under human control ; that 
it may be created in any place where fuel can be ob- 
tained ; that it can be used at will, either as a station- 
ary, or a locomotive power ; and that it can be made 
to act with perfect regularity. Its only disadvantage, 



70 ANIMATE AND INANIMATE AGENTS. 

is its expensiveness. The machinery by which it is 
generated is costly, and requires frequent repairs ; and 
the fuel, by which it is maintained, is a very seri- 
ous item of consumption. The price of engines, 
however, will be gradually reduced, as the demand 
for them increases. And it is probable, that, by im- 
provement in their construction, the consumption of 
fuel will be greatly diminished ; while increased fa- 
cilities for transportation will materially reduce its 
price. The introduction of steam power has great- 
ly reduced the price of fuel in Great Britain. 

The question whether steam or water power 
should be used in any particular case, is, I suppose, 
to be decided by their relative expensiveness. This 
will be decided, principally, by the place in which 
the power may be required. Water power will gen- 
erally be the cheaper where it can be procured in 
abundance, and sufficiently near to a market or to tide 
water. But where it is variable in quantity, or is 
at a considerable distance from the place of delive- 
ry, the cost of transportation will frequently overba- 
lance its other advantages, and render steam power 
the more economical. Machinery, propelled by 
steam, can be erected and carried on upon a wharf, 
or in the midst of a city ; and hence it avoids all 
the cost of unnecessary transportation. Machinery, 
propelled by water power, can be erected only at 
the place where the water power exists, and, of 
course, is subject to all the expense of transportation 
between that place and the market. 

The advantages of inanimate over animate natu- 
ral agents, are several. 

1. Inanimate agents can, within a small compass, 
and with comparatively little weight, produce a 
vastly greater amount of momentum, than animate 
agents. Thus, a steam engine, of one hundred and 
fifty or two hundred horse power, occupies but a 
small space, and forms but a small part of the 
cargo of a vessel. But so great a number of horses 
could scarcely be carried in any vessel designed to 



ANIMATE AND INANIMATE AGENTS. 71 

transport either freight or passengers ; and, besides, 
no mechanical arrangement has yet been devised, 
by which such a number of animals could conve- 
niently be employed upon one operation. 

2. They are continuous ; that is, they are never 
liable to fatigue, and never need rest. Animals must 
spend the greater part of their time in feeding or in 
repose. Specially is this the case, if they are work- 
ed rapidly. During this time, the labor which they 
perform must either be suspended, or else other ani- 
mals must take their place. A horse cannot labor 
severely for more than eight hours in twenty- four. 
Hence, if the uninterrupted labor of horses were re- 
quired for twenty-four hours, three relays must be 
provided. Thus, if a boat were required to perform 
a voyage in twenty-four hours, she must employ 
three relays of horses ; that is, a steam boat, worked 
by a power equal to that of one hundred and fifty 
horses, would require four hundred and fifty horses, 
in order to create the necessary momentum. 

3. Hence, there is a great gain in Economy. The 
firstcostof inanimate is generally less than that of an- 
imate agents ; they are liable to no diseases ; they re- 
quire no food ; and create expense only while they are 
parforming their work. Were the labor now perform- 
ed by steam, to be performed by horses, the price of 
the ordinary necessaries of life would be quadrupled, 
and many articles of ordinary use would be placed 
out of the reach of any but the most opulent. Nor is 
this all. The substitution of inanimate for animate 
power, has a great tendency to reduce the cost or to 
increase the supply of all agricultural products. Sup- 
pose that, by the use of steam, one thousand horses can 
be dispensed with. A horse requires for sustenance, 
throughout the year, as much agricultural produce 
as would support eight men. If, then, these one 
thousand horses can be dispensed with, there may be 
produced, on the land which was formerly employed 
for the production of hay, as much grain as will sup- 
port eight thousand men. This must, at first, re- 



72 ANIMATE AND INANIMATE AGENTS. 

duce the price of grain ; and the result would be, 
that the district would support eight thousand more 
men than before. 

4. There is also, commonly, a gain in personal 
safety. Inanimate agents act under laws which 
may be known and obeyed, and of which the results 
may be commonly foreseen and guarded against. 
Animals are endowed with passions and will, which 
we can frequently neither control nor influence. Be- 
sides, the greater expensiveness of the individual ma- 
chines employed in the use of inanimate agents, renders 
it for the interest of the proprietor, to employ men of 
experience and responsibility to manage them. This 
very sensibly diminishes the risk. When we reflect 
upon the vast amount of traveling by steamboats 
and railroads, it must be evident, that, notwithstand- 
ing the accidents to which they are liable, a vastly 
greater amount of human life would be sacrificed, if 
the same number of persons were transported by 
horses. It is also to be remembered, that the use of 
steam is yet in its infancy, and that greater experi- 
ence and skill will materially reduce the number of 
accidents to which this mode of conveyance is at 
present liable. 

5. Inanimate agents can be used xoithout the inflic- 
tion of pain. Inanimate agents are insensible. 
Where the labor to be accomplished is either severe, 
or where it requires great speed, animals must be 
rapidly consumed. This exposes them to great suf- 
fering. A horse in a stage coach can rarely travel, 
rapidly, more than ten miles a day ; and most horses 
will endure even this labor but for a short time. 
From this suffering inanimate power is exempt. It 
never endures pain from being over driven. 

6. Animate power decreases with velocity. Hence, 
we must soon arrive at a point beyond which it can 
no further be used to create momentum. If we rep- 
resent the tractive force of a horse, when moving 
at two miles an hour, at 100, his force, at the rate of 
three miles, will be 81 ; at the rate of four miles, 



MEANS BY "WHICH MOMENTUM IS APPLIED. 73 

64 ; at the rate of five miles, 49 ; at the rate of six 
miles, 36 ; while at the top of his speed, he can car- 
ry nothing more than his own weight. An engine, 
on the contrary, may be made to work as powerful- 
ly at one degree of velocity as at another. In all 
cases, therefore, in which both great power and great, 
velocity are required, inanimate power must, of ne- 
cessity, be employed. 

From these causes, we see that inanimate is ra- 
pidly taking the place of animate power, both where 
stationary and where locomotive force is required. 
By the additional speed which it is capable of pro- 
ducing, it gives rise to great economy of time. 
This, to all persons engaged in active employments, 
is a consideration of vast moment. Being a contin- 
. uous agent, it is also enabled to act with the great- 
est certainty. Hence, men may adjust their trans- 
actions, in different places, with entire precision. 
This is also another source of economy, both of 
time and of capital. And, besides, notwithstanding 
the expensiveness of the arrangements for the use of 
locomotive forces, yet the amount of additional tra- 
veling, to which they give rise, is so great, that the 
expensiveness of transportation between different 
places is, in general, materially diminished. 

II. Of the natural agents by which momentum is 

APPLIED. 

It is obvious, that a great addition is made to 
human power, where the agents for creating mo- 
mentum have been discovered. But this is not all. 
Several combinations of matter may be formed, by 
which mere human force may be greatly assisted, 
and which, by being united with the agents for cre- 
ating momentum, may greatly increase, and vary, 
and give adaptation to, its utility. These are call- 
ed the mechanical powers, which are treated of at 
large in works on Mechanics and Natural Philoso- 
phy. In their simple form, they are the lever, the 
wheel and axle, the inclined plane, the screw, the 
pulley, and the wedge. They are variously combin- 
7 



74 MEANS BY WHICH MOMENTUM IS APPLIED. 

ed, for producing the different results of mechanics, 
but may be all reduced to these simple elements. 

By means of these, the muscular power of man is 
enabled greatly to increase its effect ; that is, a man 
by his own strength can now accomplish labor 
which he could not accomplish without them. 
Though these instruments give no new strength, yet 
they greatly increase the effectiveness of that which 
already exists ; and hence, their invention marks an 
important era in the progress of civilization. It is 
also to be remarked, that their origin, in point of 
time, is far in advance of the discovery of the cre- 
ative agents. Archimedes had made great progress 
in the discovery and application of these modify- 
ing powers, when the use of creative agents was 
almost unknown. 

The triumph of human skill is, however, achiev- 
ed, when these two forms of natural agency are 
combined in a single machine. By the one we gen- 
erate power, to what extent soever we choose ; and 
by the other we modify it in any form, to give it 
any application, and direct it to any purpose, that 
our convenience may require. It is in this manner, 
that man renders all the various powers of nature 
tributary to himself. He can thus create, and use 
as he pleases, as great a power as he desires. He 
devolves the labor on nature, and he has only to 
fabricate the instruments, and give them their direc- 
tion. He is successful just in proportion as he does 
this ; since nature always works with undeviating 
accuracy, with unerring skill, with indefatigable 
perseverance; and she always works for nothing. 

It may be useful to specify some of the results ac- 
complished by the various instruments, which man 
employs for modifying that momentum which is 
exerted by the first class of natural agents. 

1. We are thus enabled to change the direction of 
the power. Thus, in the cylinder of the steam en- 
gine, the momentum is created either in perpendic- 
ular or horizontal strokes. This, being by means of 



MEANS BY WHICH MOMENTUM IS APPLIED. 75 

an arm and a crank changed into a circular mo- 
tion, moves the paddle-wheels of a steamboat. Thus, 
also, in the machinery for moving a trip-hammer, a 
circular is changed" into a perpendicular motion, by 
the striking of the cogs of a wheel upon the short 
arm of a lever, while the hammer is attached to the 
other arm. 

2. We exchange power for velocity. This is done 
in all spinning machinery. By water or by steam, 
we cause a large wheel to revolve ten, twenty, or 
thirty times in a minute, and with a power equal to 
that which could be produced by fifty or one hun- 

'dred horses. In spinning, however, we need small 
power, but great velocity. Hence, by the combina- 
tion of various large and small wheels, we produce 
a velocity, in a thousand spindles, equal to many 
thousand revolutions in a minute. The whole of 
this fifty or one hundred horse power, is thus spread 
over a large manufactory, and adapted, by various 
contrivances, to every degree of velocity, and every 
form of motion that may be required. 

3. We are thus enabled to exert forces too great 
for animate poiver. By water power, or by steam, 
we can generate as great a force as we please ; and 
we have only to combine with it the proper adjust- 
ments, in order to exert upon any point any momen- 
tum which we desire. The power required to roll 
and hammer iron, or copper, to propel steamboats, 
to forge anchors, and that used in several other of 
the arts, is greater than could be exerted by any 
animate force with which we are acquainted, unless 
it were exerted by means of some combination of 
the mechanical forces. 

4. We are thus also enabled to execute operations 
too delicate for human touch. Very delicate opera- 
tions, soon weary the nervous system by the ex- 
cessive attention which they of necessity require. 
Thus, in order to spin the finest thread on a spinning 
wheel, there must be great accuracy, both in the velo- 
city of the wheel, and in the muscular power exerted 



76 MEANS BY WHICH MOMENTUM IS APPLIED. 

in drawing out the thread. This requires an effort 
of attention, which the human system cannot long 
maintain, and, of course, the thread will frequently 
be uneven. But by means of machinery, both of 
these operations may be adjusted with mathemati- 
cal accuracy ; and as machines have no nerves, they 
will be perfectly faithful to that adjustment. Thus 
we invariably see that the most delicate fabrics are 
those that are wrought by natural agents. Hence 
machinery is necessarily used in the manufacture 
of such articles as require for their formation identi- 
ty of result, such as screws, types, &c. 

5. By means of machinery, we are enabled to ac- ' 
cumulate power. We thus exchange a continuous 
and small force, for a sudden and violent one. Such 
is the case with the pile-driver, and the common bee- 
tle or mallet, when used in combination with the 
wedge. 

6. By the same means we are enabled to exchange 
a short and irregular effort for a continuous and 
regular movement, or to spread the action of a short, 
over a long period of time. This is done in clocks, 
watches, and other similar machinery. Here we 
spread the action of a minute, over a day, or a week, 
aud with almost mathematical accuracy. 

In consequence of the above mentioned application 
of machinery, various other advantages are realised 
in production. For instance ; there is frequently a 
great saving of material, as in the change from mak- 
ing boards with the adze, to that of making them 
with the saw; and again the labor of natural agents 
is so much cheaper, that many articles, which would 
otherwise have been worthless, are now deserving of 
attention, as they may now be profitably endowed 
with some form of value. 

I close these remarks, upon the use of natural 
agents, with an extract, very graphically describing 
the power of the steam engine, which has common- 
ly been ascribed to Francis Jeffrey, Esquire, of Edin- 
burgh : 



MEANS BY WHICH MOMENTUM IS APPLIED. 77 

"It (the steam engine) has become a thing, stu- 
pendous alike for its force and its flexibility ; for the 
prodigious power which it can exert; and the ease, 
precision and ductility with which it can be varied, 
distributed and applied. The trunk of an elephant, 
that can pick up a pin or rend an oak, is as nothing 
to it. It can engrave a seal, and crush masses of ob- 
durate metal before it; draw out, without breaking, 
a thread as fine as a gossamer; and lift up a ship of 
war, like a bauble in the air. It can embroider 
muslin, and forge anchors; cut Steele into ribands, 
and impel loaded vessels against the fury of the winds 
and waves. 

"It would be difficult to estimate the value of the 
benefits which these inventions have conferred upon 
the country. There is no branch of industry that 
has not been indebted to them, and in all the most 
material, they have not only widened most magnifi- 
cently the field of its exertions, but multiplied, a 
thousand fold, the amount of its productions. It is 
our improved steam engine, that has fought the bat- 
tles of Europe, and exalted and sustained, through 
the late tremendous contest, the political greatness 
of our land. It is the same great power, which ena- 
bles us to pay our national debt, and to maintain the 
arduous struggle in which we are still engaged, with 
the skill and capital of countries less oppressed with 
taxation. 

" But these are poor and narrow views of its im- 
portance. It has increased, indefinitely, the mass of 
human comforts and enjoyments, and rendered cheap 
and accessible, all over the world, the materials of 
wealth and prosperity. It has armed the feeble hand 
of man, in short, with a power to which no limits 
can be assigned; completed the dominion of mind 
over the most refractory qualities of matter; and laid 
a sure foundation for all those future miracles of 
mechanical power, which are to aid and reward the 
labors of after generations." 
7# 



78 



SECTION II. 



OF DIVISION OF LABOR. 

We have shown that the productiveness of human 
industry may be greatly increased by the discovery 
of the qualities and relations of things, and by the 
invention of instruments, by which those qualities 
may be applied and modified. In this manner, the 
power of man receives an almost incalculable aug- 
mentation. But this is not all. It is found that the 
result of human effort may be still farther very great- 
ly increased. Thus : supposing the agents of nature, 
and also their mode of application, to be known, and 
that a given number of men are about to perform an 
operation, they may make such arrangements among 
themselves, as will, in a given time, and with a 
given expenditure of labor, enable them to accom- 
plish a vastly greater result than could be accom- 
plished without such arrangements. The mode, in 
which this is effected, is by division of labor. 

Division of labor is always, to some degree, em- 
ployed where different individuals are engaged in the 
different branches of human industry. Thus, labor 
is divided when different persons employ themselves 
in the several departments of discovery, application, 
and operation. Labor is still further divided, when 
those employed in these great departments, are sepa- 
rated into distinct classes, each class devoting itself to 
the accomplishment of one particular object. Thus, 
one man investigates the laws of mechanics ; an- 
other, those of astronomy; and a third, those of vege- 
tation. One man is devoted to the profession of the 
law; and another, to that of medicine; while each 
separate trade is employed in the creation of a par- 
ticular product. By all these divisions, it is mani- 
fest that the result of the whole is greatly increased. 
It is only the savage, that combines in his own per- 



DIVISION OF LABOR. 79 

son, in all their departments, the character of phi- 
losopher, inventor, and operator. He approximates 
to the civilized state, only in so far as he begins to 
confine himself to some particular calling. And it 
is always in the most advanced periods of civiliza- 
tion, that division of labor is carried to its ultimate 
limits. 

But, besides this, the different parts of any opera- 
tion may be analyzed; and to each part the whole 
labor of a single individual may be confined. Thus, 
the labor of making a pin may be divided into wire 
drawing, wire straightening, pointing, heading, tin- 
ning, &c. In Political Economy, labor is said to be 
divided, just in so far as these several processes are 
assigned to separate operators. It is found, by ex- 
perience, that such an arrangement increases the pro- 
ductiveness of human labor to an extent, which, to 
a person who had not examined the facts, would ap- 
pear wholly incredible. The principles on which 
this increased productiveness of labor depends, are 
the following: 

1. Division of labor shortens the period required 
for learning an operation. The more complicated 
the operation, the longer is the time necessary for 
acquiring the skill requisite to the performing of it 
successfully. But this time spent in learning, is use- 
less to the operator and to society, only in so far as 
it is necessary to the creation of the product. The 
longer the time necessary for learning an operation, 
the higher must be- the wages of the operator, for the 
remainder of his life; and also, of course, the greater 
must be the price of his products. If this can be 
lessened, the price of course will fall. Now, that 
this is lessened, by division of labor, is evident from 
an obvious example. Suppose that a given process, 
say the making of nails, consists of seven operations; 
and that each of these operations required one year's 
practice, before it could be successfully performed. 
Now, if seven men were to learn this occupation, and 
each one were obliged to learn every operation, the 



80 DIVISION OF LABOR. 

time required would be 7 X 7=49 years; whereas, 
if each of them were required to learn but one, the 
time would be but 7 X 1=7, or, the difference would 
be, 49 — 7=42 years of human labor, or six-sevenths 
of the whole time, which would thus be saved. 
There would be six years more of productive labor, 
in the life of each of these men; and, as they had 
spent less time in acquiring their art, they could af- 
ford to exercise it for lower wages. 

Besides, there is, intimately connected with this 
cause, another, of considerable importance. Every 
one, in learning an art, must, by unskillfulness, de- 
stroy a considerable portion of capital. And this 
amount of capital will be in proportion to the num- 
ber of operations which he is obliged to learn. Thus, 
suppose that a man learns seven operations, and, in 
learning each, destroys ten dollars' worth of capital, 
the amount which he will destroy, in acquiring his 
whole trade, will be 7 X 10=70. If he have to learn 
but one, it will be but ten dollars; and thus, the dif- 
ference will be 70 — 10=60 dollars, upon every such 
individual. A difference, so great as these two com- 
bined, when spread over the whole face of society, 
will have no inconsiderable effect upon the annual 
nett revenue of a community. 

2. When one man perforins all the operations re- 
quired in a complicated process, much time is lost in 
passing from one operation to another. By division 
of labor, this loss is avoided. 

The effect of habit is known to every one. It ren- 
ders any operation easy, which is frequently repeat- 
ed. The mind and the muscles become adapted to a 
particular form of labor ; but, if that form of labor 
be suspended, and our attention be directed to ano- 
ther, it requires a considerable time before we can 
acquire a different habit, and, in the mean time, the 
good effects of the preceding habit, are, to a consi- 
derable degree, lost. Hence, he who is frequently 
passing from one occupation to another, is in the 
condition of him who is, during his whole life, form- 



DIVISION OF LABOR. 81 

ing habits ; and never in the condition of him, who 
has the advantage of habits already formed. Be- 
sides, this long habit produces in the muscles a ca- 
pacity for continued exertion. He who is in the 
habit of performing an operation, can perform it, 
without sensible fatigue, for hours together. Every- 
one who has ever sawed wood, or used a spade in a 
garden, is sensible of this fact. Now, all this ad- 
vantage is lost, by frequently turning from one op- 
eration to another. 

3. Where complicated tools are to be used, and 
there is no division of labor, much time is also lost 
in adjusting them to the different kinds of work. 
By division of labor, this disadvantage is obvi- 
ated. Suppose that nails, of different sizes, are to 
be made, and it is necessary that the machinery, in 
order to adapt it to the different kinds of work, 
should be frequently adjusted ; the time so occupied 
produces nothing, and is lost. If, on the contrary, 
one machine is permanently used for the manufac- 
ture of nails of one particular size, all this loss is 
avoided. This is also more obvious, when the ad- 
justment involves expense; as, for instance, when a 
furnace is used. If a furnace be heated, and then 
suffered to cool while the operator is performing 
some other labor, the fuel consumed, after he leaves 
it, and that which is used to bring it again to the re- 
quisite temperature, are a total loss, in addition to 
that of the time and labor required in kindling the 
fire, and in waiting for the rise of temperature. By 
dividing the labor, so that one person shall be al- 
ways employed at the furnace, whilst others are em- 
ployed at other parts of the process, much capital 
and labor will be saved. 

4. By constantly pursuing the same occupation, a 
degree of skill and dexterity is acquired, which 
greatly increases the productiveness of human labor. 
This advantage is lost, by employing the same indi- 
vidual upon several operations. Adam Smith in- 
forms us, that a blacksmith, who occasionally makes 



82 DIVISION OF LABOR. 

nails, but whose whole business is not that of a nail- 
maker, can make but from eight hundred to one 
thousand nails a day ; whilst a lad, who has never 
exercised any other trade, can make upwards of 
twenty-three hundred a day. All who have been 
accustomed to visit manufactories, must have been 
surprised to observe the dexterity which is acquired, 
even by children, in performing the operations in 
which they are exclusively engaged. It is probable 
that the performers of jugglery, or sleight-of-hand, 
derive their skill almost entirely from this cause. 
They seldom perform more than a few operations, 
but by practicing these, and these alone, for a great 
length of time, they at last attain to a proficiency, 
which, to a spectator, is incomprehensible. 

5. Division of labor suggests the contrivance of 
tools for the performance of the operation in which 
it is employed. 

The more completely any process is analyzed, the 
simpler must become the individual operations of 
which it is composed : and the simpler any opera- 
tion is, the easier is it to contrive a tool, or an ad- 
justment, by which it may be performed. Adam 
Smith informs us, that, in the first steam engines, 
boys were constantly employed to open a communi- 
cation between the boiler and cylinder, according as 
the piston ascended or descended. One of these 
boys observed, that, by uniting the handle of the 
valve which opened this communication with ano- 
ther part of the machine, the valve would open and 
shut without his assistance, and leave him at liber- 
ty to play with his fellows. One of the most im- 
portant improvements of this machine was thus, by 
division of labor, brought within the capacity of a 
playful boy. It would have been very difficult to 
invent machinery for the making of nails, when 
all the processes were considered as a complicated 
whole. But after the several operations are divided, 
and are assigned to individuals separately, it becomes 
comparatively easy to construct an adjustment, by 



DIVISION OF LABOR. 83 

which any one of them, singly, could be performed. 
This is the first step in invention. But this is not 
all. After these several single instruments have 
been invented, the next step is to combine them to- 
gether. This is the most finished effort of mechani- 
cal genius. This is the principal difference between 
a tool and a machine. A tool performs one single 
operation ; a machine combines several tools togeth- 
er, and accomplishes either the whole, or a consid- 
erable part, of a complicated process. 

6. Every one, at all acquainted with manufactur- 
ing employments, must have observed, that some of 
the operations, in a given process, require greater 
muscular power, or greater skill, or greater dexterity 
than others. Some, for instance, can be performed 
only by the most experienced workmen, while oth- 
ers can be perfectly well performed by children. 
Now, by division of labor a manufacturer is enabled 
to employ, upon each operation, precisely the labor 
adapted to it, and is obliged to pay for each por- 
tion of the labor no more than it is actually worth. 
This must greatly diminish the cost of production. 
Thus, the manufacture of pins is divided into ten 
different operations, and each operation employs one 
laborer. But some of those laborers are men ; others 
are women and children ; and their wages vary 
from six shillings to four and a half pence sterling a 
day. If the labor were not divided, one person 
must understand the whole process, and, therefore, 
must be employed at the highest price of labor ; and 
hence, he must be paid at the rate of six shillings a 
day, for that part of the work which is worth only 
four and a half pence a day. Every one must see 
that this would greatly increase the price of pins, 
and also occasion a great deficiency in labor. It is 
by this means, also, that occupation is provided for 
the weak and the aged, for females and for children, 
who would, otherwise, be unable to earn any thing. 
Thus, all the labor of the community is rendered 
productive, and an immense amount is annually 



84 DIVISION OF LABOR. 

added to the revenue of a country. Nor is the gain 
to be estimated at simply what is thus earned. The 
whole community is thus acquiring those habits of 
industry and self-dependence, which are essential to 
its happiness and well-being, no less than to its ra- 
pid accumulation of capital.^ 

Nor are the benefits of the division of labor con- 
fined to mechanical processes. Their results have 
been equally interesting, in those cases where this 
principle has been applied to intellectual labor. The 
effect of such a division is seen in the following ac- 
count, which I introduce here, not only because it 
very happily illustrates this whole subject, but also 
because it may suggest to scientific men, some other 
cases in which it may be again applied with similar 
benefit. 

During the period of the French revolution, the 
government was desirous of producing a series of 
mathematical tables, in order to facilitate the exten- 
sion of the decimal system, which had been recently 
adopted. They directed their mathematicians to 
construct such tables on the most extensive scale. 
The superintendence of the work was confined to 

* The following facts, respecting the manufacture of watches, 
illustrate very forcibly the extent to which the division of labor 
may be carried, and also the amount of value which may be con- 
ferred upon the cheapest substance by accumulated and high priced 
labor : — 

A watch consists of 992 pieces, and forty-three trades are employ- 
ed in their construction ; the chain, whose length is eight inches, 
lias 165 links, three plates and two pins, in all 826 pieces, and 
passes through J5 hands, men, women, and children, of three 
trades, before it is complete : allowing then five hands in each 
trade, 215 persons find employment in making a watch. This ex- 
tensive and numerous individuality will apply, more or less, to ev- 
ery manufactured article in every day use ; but no branch of man- 
ufactures will afford such an illustration of the value of labor. 
The iron of which the balance spring is formed is valued at some- 
thing less than a farthing; this produces an ounce of steel, worth 
4 ]-2</., which is drawn into 2,250 yards of spring wire, and repre- 
sents in the market .-£13 4s.; hut still another process of hardening 
this originally farthing's worth of iron renders it workable into 
7,650 balance springs, which will realize, at the common price of 
25. 6d. each, £946 5s. the effect of labor alone. 



DIVISION OF LABOR. 85 

M. Prony. It happened that shortly after he had 
undertaken it, he opened, in a bookstore, Adam 
Smith's "Wealth of Nations," and, by accident, 
turned to the chapter on division of labor. The 
thought immediately suggested itself, that this might 
be adopted in the work in which he was engaged. 
He immediately followed out the suggestion, and 
arranged his plan accordingly. He divided the 
persons who were to execute the labor, into three 
sections : 

The first section was composed of five or six of the 
most eminent mathematicians of France. Their 
duty was to ascertain the analytical expressions which 
were most readily adapted to simple numerical cal- 
culation, and which could be performed by many 
individuals employed at the same time. The for- 
mulae on the use of which it had decided, were to 
be delivered to the second section. 

The second section consisted of seven or eight per- 
sons, of considerable aquaintance with mathematics, 
whose duty it was, to convert into numbers the for- 
mulae put into their hands by the first section ; and 
then to deliver out these numbers to the members of 
the third section, and to receive from them the fin- 
ished calculations. These they could verify without 
repeating the work. 

The third section consisted of sixty or eighty per- 
sons. They received the numbers from the second 
section, and, using nothing more than addition and 
subtraction, returned to that section, the finished ta- 
bles. Nine-tenths of this class had no knowledge of 
arithmetic beyond its first two rules; and it is remark- 
able that these were usually found more correct in 
their calculations, than those who possessed a more 
extensive knowledge of the subject. The extent of 
the labor, which was thus executed in a remarkably 
short space of time, may be estimated, when it is 
stated that the tables thus formed are computed to 
occupy seventeen large folio volumes. And yet we 
see that the greatest part of the labor was actually 



86 LIMITATIONS TO DIVISION OF LABOR. 

accomplished by persons who might be employed at 
very small expense, and who could do the work as- 
signed them, as perfectly as those whose labor was 
the most expensive.^ 

We thus see the manner in which the productive- 
ness of human labor maybe increased. 1st. By dis- 
covering the various agents of nature which God has 
created for our benefit ; 2d. By applying these agents 
to the service of man; 3d. By so arranging and ad- 
justing human industry, that the labor necessa- 
ry to be employed, may operate with the greatest 
possible advantage. In one or other of these meth- 
ods, must every improvement in the physical condi- 
tion of mankind operate. And civilization advan- 
ces just in proportion as all of them combined are 
brought to bear upon the work of production ; that 
is, of creation of objects of desire, in other words, of 
means for human happiness. 



SECTION III. 

LIMITATIONS TO THE DIVISION OF LABOR, BOTH INDIVIDU- 
AL AND NATIONAL. 

We now proceed to another branch of the sub- 
ject; the Limitations of the Divisions of Labor. 
These may be considered in reference to the indi- 
vidual and to society. In so far as the individual is 
concerned, these limitations arise from three causes. 
1st. The Nature of the ywocess ; 2d. Deficiency of 
Capital; and 3d. Demand. 

1. From the Nature of the Process. Every pro- 
cess can be analyzed into its ultimate elements ; that 
is, into the various simple processes of which it. is 
composed. Thus, the straightening of a wire is one 
operation, the cutting it into equal lengths is another, 

* Babbage on Economy of Macbinery. 



LIMITATIONS TO DIVISION OF LABOR. 87 

the sharpening of the points is another, the heading 
of a pin is another, &c. But when we have reduced 
it to its simple operations, we can now proceed no 
farther. Hence, here is our necessary limit; for it 
is no division of labor to employ two men to perform 
precisely the same operation. Hence an establish- 
ment, which carries division to this limit, will be 
able, from what has been said, to undersell another 
which does not carry it to the same degree of per- 
fection. And hence, in establishing a manufactory, 
it is important so to adjust the number and kind of 
workmen, that, when the different operations of a 
process have been assigned to different persons, these 
persons may be in such proportions as exactly and 
fully to employ each other. The more perfectly this 
is accomplished, the greater will be the economy. 
And, this having been once ascertained, it is also 
evident, that the establishment cannot be success- 
fully enlarged, unless it employ multiples of this 
number of workmen. 

2. Division of labor may be limited by deficiency 
of Capital. Division of labor, in manufactures, can 
not be carried on, unless the proprietor have suffi- 
cient capital to employ, at the same time, all the 
persons necessary to such a division, and to keep 
them so employed, until the proceeds of their work 
enable him to furnish them again with fresh ma- 
terial. This is, of course, a considerable out- 
lay, and supposes a considerable accumulation 
of the proceeds of pre-exerted industry. Hence, 
in a poor or in a new country, there can be but 
little division of labor. No one has more than 
enough capital to employ himself, and, perhaps, one 
or two laborers ; and hence, each individual per- 
forms all the operations of each process, and fre- 
quently those of several processes. The same indi- 
vidual is the farrier, blacksmith, cutler, and, perhaps, 
wheelwright, for a whole settlement. To illustrate 
this by a single instance : If a nailer be able to pur- 
chase no larger amount of iron and coal than he 



SO LIMITATIONS TO DIVISION OF LABOR. 

can use in the manufacture of nails in a day, he 
must perform all the parts of the process himself; 
and, of course, must labor very disadvantageously. 
As soon, however, as he is able to double his capi- 
tal, he may employ another person to work with 
him, and they may then introduce a division of labor. 
When he has tripled his capital, he may employ an- 
other workman, and carry his division still farther. 
He may thus go on until he has reduced the process 
to its simplest elements. When he has gone thus 
far, the accumulation of his annual capital will en- 
able him to invest something in fixed capital. He 
will thus be able to purchase some of the simpler 
machines, by which some of the parts of his process 
may be executed. To these he will add others, as 
he advances in wealth, until his accumulated means 
enable him to combine them into one machine, 
for completing the whole process. Thus he becomes 
a manufacturer, and derives the larger part of his 
revenue, from the use of his fixed capital. It is not 
pretended that all these changes always, or fre- 
quently, take place within the life-time of a single 
individual. The progress of society is not generally 
-so rapid. Yet they sometimes occur in the manner 
which I have stated. I give the illustration, to 
show the tendency of things, and the power of accu- 
mulated capital. But, whether the results are com- 
prised in the life-time of one, two, or three individu- ■ 
als, the principle is the same. 

3. Division of labor may be limited by the demand 
for the article produced. Suppose that, in a given 
district, there is a demand for one hundred pounds 
of nails per day, and that these can be made by two 
men. If three men could, by division of labor, make 
two hundred pounds per day, there would be but 
small gain, either to the workmen or to the public ; 
because these men would, of course, lie idle half of 
the time, and for this time they must be paid, as 
well as for the time in which they were employed. 
Or, if they did not lie absolutely idle, that portion of 



LIMITATIONS TO DIVISION OF LABOR. 89 

their time, which was employed on other labor, 
would be of comparatively small value ; and they, 
by attending to other business, would lose the skill 
which complete division of labor confers ; and which 
is one of its principal benefits. The case is still 
stronger, if we take into view the fact, that division 
of labor supposes a large investment of fixed capital, 
and that those who are educated to any manufac- 
turing business, can rarely employ themselves upon 
any thing else. If the laborers at any of our manu- 
factories were employed only half the time, their 
wages must be doubled ; for their families must be 
supported, one day as well as another, and thus the 
interest of the whole investment must be charged 
upon half the quantity of product. These causes, 
together with the loss of skill in workmen, would 
more than double the price of products, and would, 
of necessity, carry back the division of labor to its 
less perfect state. 

But this demand must depend upon several cir- 
cumstances. The most important of these are the 
following : 

1. The number of the consumers. When the 
number of inhabitants is small, as in a newly settled 
country, or in an isolated situation, the demand 
must, of course, correspond to their number. One 
hundred men will require but one tenth as many 
hats or shoes as one thousand men. It is on this ac- 
count that wealth accumulates most rapidly on nav- 
igable waters, because the market of the producers 
is not limited to themselves, but may be easily ex- 
tended to other places. 

2. By the wealth of the inhabitants. Demand does 
not signify simple desire for an article, but desire for 
it, combined with the ability and willingness to give 
for it what will remunerate the producer. Hence, 
the greater the ability, in a given population, to re- 
munerate the producer, the greater will be the de- 
mand. The demand for hats, in a population of one 
thousand men, would be limited to those persons in 

8* 



90 LIMITATIONS TO DIVISION OF LABOR. 

that population who were able to buy a hat. The 
larger the proportion of such individuals, the better 
it would be for the hatter, and for every other pro- 
ducer. Hence we see, that every individual is in- 
terested in the prosperity of every other individual 
in the community. 

3. By the cost of -the article. The greater the cost 
of the product, the smaller will be the number of 
persons who are able to purchase it. Hence, the 
less will be the demand ; and hence, also, the less 
opportunity will there be for division of labor. And, 
besides, the greater the cost of the article, the great- 
er amount of capital is required in order to produce 
it by division of labor. Hence, this cause operates 
in two ways to prevent the employment of this 
means of effecting the reduction of price. Thus, 
if a community consist of one thousand men, and 
of these, one hundred be worth one thousand dol- 
lars per year ; four hundred be worth five hun- 
dred dollars; and the remainder be worth but two 
hundred and fifty dollars per year ; and an article 
be produced within the reach of only the first of 
these classes, it can have but one hundred pur- 
chasers ; if it come within the reach of the second 
class, it will have five hundred ; and if it come with- 
in the reach of the third class, it will have one thou- 
sand purchasers. Hence it is, that division of labor 
is but sparingly used in the manufacture of rich jew- 
elry, and in articles of expensive luxury; while it is 
so universally used in the production of all articles 
of common use. Hence we see, that the benefits of 
the use of natural agents and of division of labor, 
are vastly greater and more important to the mid- 
dling and lower classes, than to the rich. These 
means of increased production, reduce the cost of the 
necessaries and of the essential conveniences of life 
to the lowest rate, and, of course, bring them, as far 
as possible, within the reach of all. 

4. By facilities of transportation. This is evi- 
dent, from what has been said. The cost of an ar- 



LIMITATIONS TO DIVISION OF LABOR. 91 

ticle depends not only on the cost of its original pro- 
duction, but also upon the cost necessary to bring it 
to the consumer. Coal may he very cheap at a coal 
mine, but if it must be borne on the shoulders of 
men to the consumer, it would, at a few miles from 
the mine, become so dear, that no one would be able 
to use it. The demand would be so small, that 
there would be no profit either in investing capital 
in the machinery, or in employing division of labor 
to raise it from the mine. But if horses be used to 
transport it to the consumer, the demand will increase. 
Again, if, for horses, canals and railroads be substi- 
tuted, it will become cheap, and the demand will 
increase still more ; and, with every such improve- 
ment, that circle of consumption expands, of which 
the mine is the centre. The same principle applies 
to manufactures, specially those of iron or heavy 
ware, and it applies just in proportion as transpor- 
tation forms a large or small part of the cost to the 
consumer. And thus, in general, we see the principle 
on which facilities for internal communication improve 
the condition of both the other branches of industry. 
For this reason, the price of land and grain, rises in a 
district through which a canal or a railroad passes ; 
and, for the same reason, manufactories may at one 
time be successfully established in situations where 
they at another time would have been useless, if not 
ruinous to the proprietor. And, still more generally, 
we see the manner in which all the branches of labor- 
assist each other. A railroad or a canal can never 
profitably be constructed in a country where there is 
nothing to be transported. But where agriculture, 
manufactures, and commerce are productive, and 
hence require a large amount of transportation, there, 
these facilities are immediately in demand. Were 
Liverpool and Manchester to decline, of what use 
would be the railroad between them ? And, on the 
other hand, the railroad between them, by reducing 
the cost of all articles bought and sold, diminishes 
the cost of living in both places, enables the producer 



92 DIVISION OF NATIONAL LABOR. 

to come into market with greater advantages, in- 
creases the profit in all kinds of industry, facilitates 
the accumulation of capital, and thus adds greatly 
to the annual revenue of both cities. 

II. I have thus far considered the division of labor 
as it exists among the inhabitants of the same place, 
and in the same situation. The same principle, 
however, applies to people of different districts. 
Here it is not merely a matter of choice, but, in a 
great measure, of necessity ; that is, it is required 
by the very conditions of our being. 

It is manifest, that the different portions of the 
same country possess different facilities for producing 
the objects of human desire. No district possesses 
advantages for producing every thing ; but almost 
every district possesses peculiar facilities for pro- 
ducing something. Now, natural advantages are 
clearly nothing more than means of increased pro- 
ductiveness of labor in the creation of any particular 
product. If one soil will produce forty bushels of 
wheat to the acre, with the same labor that another 
will produce twenty, the labor upon the first is twice 
as productive as that upon the second ; that is, the 
owner of the one has a machine by which he can, 
with the same labor, produce twice as much as his 
neighbor. But perhaps the soil which will produce 
only twenty bushels of wheat, will produce forty 
bushels of corn per acre, while the other soil will 
produce only twenty. This second soil is, therefore, 
an instrument which gives a double productiveness 
to labor in the raising of corn. Now, it is manifest, 
that if each one devotes himself to the production of 
that for which nature has given him peculiar facili- 
ties, his amount of production will be greater, he 
will himself be richer, and the whole community 
will be supplied at a diminished cost. Suppose that 
each occupied twenty acres, and each produced the 
crop for which he had the greater advantages ; the 
result would be 20x40=800 of wheat, and the same 
of corn ; =300 bushels of wheat and 800 of corn. 



DIVISION OF NATIONAL LABOR. 93 

Suppose, again, they divided their crops, and each 
appropriated ten acres to wheat and ten to corn ; the 
result would be, 10x40=400 of wheat, and 10x20 
=200 of corn; and 10x40=400 of corn, and 10X 
20=200 of wheat ; that is 600 of wheat and 600 of 
corn ; that is, there would be 600 instead of 800 
bushels of each raised, and the loss to both, and to 
the community, would be 200 bushels of each a year. 
By so much would they both be poorer than by de- 
voting themselves wholly to that product for which 
each had the greatest natural advantages. 

Or, to take another case. Suppose one district 
rich in soil, and adapted to the production of wheat, 
but level and far inland, and, therefore, unadapted, 
by position, and want of the proper natural agents, 
to the production of manufactures ; and another dis- 
trict, on the sea-board, hilly and sterile, adapted to 
manufactures, but unadapted to the culture of wheat. 
On the first, with one day's labor, a man may raise 
two bushels of wheat ; but could produce but four 
yards of cloth. On the other, by the same labor, a 
man can produce twelve yards of cloth, but can 
raise but one bushel of wheat. Now, it is manifest, 
that by each district's devoting its labor to that kind 
of production, for which it has the greatest natural 
facilities, the production of the whole country will 
be increased. It is also evident, that a man in the 
wheat district will provide himself with cloth at a 
cheaper rate, by raising wheat, and procuring cloth 
by exchange, than by manufacturing it himself; and 
on the other hand, that the manufacturer will pro- 
vide himself with wheat, at a much cheaper rate, 
by making cloth, than by raising wheat himself. 
Thus, by this form of division of labor, the produc- 
tive power of both is increased ; their desires are 
gratified at the expense of less labor ; and thus, both 
are rendered richer and happier. 

All this seems obvious, if only the several districts 
of the same country be compared. And it is obvi- 
ous, because every one perceives that God has be- 



94 DIVISION OF NATIONAL LABOR. 

stowed upon different districts, of the same country, 
different advantages, which it is for the interest of 
that country that each district should improve to the 
utmost. But every one may see, that the same 
principles apply to different nations inhabiting the 
different quarters of the globe. The separation of 
the earth into warring nations, is nothing but the ar- 
bitrary work of man ; it alters neither the qualities 
nor the relations which God has given to things, nor 
the laws under which he has constituted man. If a 
man own a farm, of which one part is suited only to 
tillage, and another part only to grazing, and he di- 
vide it, and sell the pasture land to his neighbor ; 
this does not alter the nature of the soil. Will it 
not be just as profitable to appropriate each part to 
the purpose for which God designed it, after the pur- 
chase, as before ? 

Every man needs, for the gratification of his inno- 
cent desires, nay, for his conveniences andevenneces- 
saries, the productions of every part of the globe. 
To be convinced of this, we have only to enumerate 
the articles which furnish our houses, the food that 
covers our tables, and the raiment which clothes our 
bodies. How greatly would all our means of hap- 
piness be diminished, were we deprived of the iron, 
the furs, and the hemp of the North ; the coffee, 
teas, sugar, rice, fruits, and spices of the South ; or 
the wool, the wheat, and the manufactures, of tem- 
perate climates. Every one must be convinced that 
the happiness of every man is increased in propor- 
tion as he is furnished with the greatest number of 
these objects of desire; and furnished with them, in 
their greatest perfection, and at the cheapest rate. 

But, it is evidently the will of our Creator, that 
but few of these objects, every one of which is ne- 
cessary to the happiness of every individual, should 
be produced except in particular districts. Others, 
if they can be produced in several places, can be 
produced much more cheaply, and in greater perfec- 
tion, in some places, than in others. Every part of 



DIVISION OF NATIONAL LABOR. 95 

the globe possesses peculiar advantages for the pro- 
duction of something ; but no part possesses advan- 
tages for the production of every thing. Hence we 
see, on the principle illustrated above, that the an- 
nual production of the globe will be greatest; 
that is, there will be the largest amount falling an- 
nually to the share of every individual ; that is, 
every individual will be richer and happier, when 
each portion of the globe devotes itself to the crea- 
tion of those products for which it has the greatest 
natural facilities. If a man in New York can pro- 
duce, by one day's labor, one hundred pounds 
of flour, but could not produce more than one 
ounce of coffee ; and a man in Cuba can produce 
twenty-five pounds of coffee, but cannot produce 
more than one pound of flour, and they exchange, 
as we have before seen they must exchange, labor 
for labor : the one will produce, by a day's labor, 
twenty-five pounds of coffee, instead of an ounce ; 
and the other, one hundred pounds of flour, instead 
of a pound. Is not this better than for the New 
York farmer to raise his coffee in a hot-house, at the 
expense of a day's labor for an ounce ; and the West 
Indian to raise his wheat on the mountains, at the 
expense of a day's labor for a pound? Such are the 
advantages of that division of labor suggested by 
geographical position. 

And the final cause of all this is evident. God 
intended that men should live together in friendship 
and harmony. By thus multiplying indefinitely 
their wants, and creating only in particular locali- 
ties, the objects by which those wants can be sup- 
plied, he intended to make them all necessary to 
each other ; and thus to render it no less the in- 
terest, than the duty of every one, to live in amity 
with all the rest. 

Nor is the application of this principle confined to 
geographical localities. The simple fact that a na- 
tion possesses facilities, be they either natural or ac- 
quired, for creating any product at a cheaper rate 



96 DIVISION OF NATIONAL LABOR. 

than any other nation, is a reason why that nation 
should devote itself to the creation of that product ; 
and why another nation should, for the same reason, 
improve its own peculiar advantages. Thus, there 
are certain states of society, and a certain amount 
of accumulation of capital, most favorable to the 
creation of certain products. A nation in this state, 
and with this accumulation, can furnish these pro- 
ducts cheaper than her neighbors ; and this is a 
reason they should purchase them of her. Could 
not one of our old States supply one of the new 
States with manufactures, cheaper than the new 
State could produce them itself? And is not this a 
reason why the new State should procure them by ex- 
change, rather than by direct production ? Is it not 
cheaper for an Indian to buy a rifle of an European, 
than to attempt to make one for himself? 

This is, however, by no means to assert that such 
arrangements and relations are to be permanent. 
As a country accumulates fixed capital, it creates 
its own facilities for creating almost every kind of 
manufactured product. One nation will naturally 
begin to do this at the same point of accumulation 
at which another began to do it. And the way in 
which to arrive at this point the soonest, is to become 
rich as fast as possible ; that is, to buy as cheap as 
we can, or, in other words, to procure, annually, as 
many objects of desire as possible, for a given amount 
of labor. A tribe of Indians would much sooner be 
able to make rifles for itself, by purchasing, at first, 
rifles of an European, than by determing that it 
would never use rifles, until it could manufacture 
them for itself. As the use of a rifle would render 
industry more productive, and thus render the tribe 
richer, it would bring them one step nearer to that 
degree of accumulation, at which they might begin 
to make rifles for themselves. But the resolution not 
to purchase of others, would have no such tendency, 
inasmuch as it would do nothing whatever towards 
accumulating production ; but would, on the contra- 



EFFECTS OF INCREASED PRODUCTIVENESS. 97 

ry, shut them out from the very means offered them 
for most rapidly benefitting their condition. 

To sum up what has been said. It will be seen 
that production will be increased ; that is, men will 
be richer, and therefore may be happier, as the fol- 
lowing conditions are complied with : 

1. As the laws of nature, designed by our Creator 
for our benefit, are understood ; 

2. As the means are devised for availing our- 
selves, in the most successful manner, of the utility 
of these laws ; 

3. As the human labor necessary to be expended, 
is so arranged as, with a given expenditure, to pro- 
duce the greatest and most perfect result ; and 

4. As the inhabitants of the earth, in different lo- 
calities, devote themselves most exclusively to the 
production of those objects of desire, for the produc- 
tion of which they have received, either directly 
or indirectly, from their Creator, the greatest facili- 
ties. 

Or, still more generally, production will be abun- 
dant ; that is, man will enjoy the means of physical 
happiness, in proportion to his individual industry, 
both of mind and body ; and to the degree of har- 
mony and good feeling which exists between the 
individuals of the same society ; and also between 
the different societies themselves. 



SECTION IV. 

EFFECTS OF THE INCREASED PRODUCTIVENESS OF HUMAN 
INDUSTRY. 

This subject has been already so frequently al- 
luded to, and all the points on which it depends so 
distinctly stated, that it will not be necessary to ex- 
amine it so fully, as might otherwise be required. 
9 



98 EFFECTS OF INCREASED PRODUCTIVENESS. 

The result of industry applied to capital is pro- 
duct, value, or the means of gratifying human desire. 
The result of increased productiveness of human in- 
dustry, is, with the same labor, increased product, 
value, or means of gratifying human desire. That is, 
in general, increased productiveness is equivalent to 
increased means of human happiness. This simple 
statement would seem sufficient to explain the whole 
subject. In order, however, to obviate any objec- 
tions that may arise, we will proceed to show its 
practical operation, by several illustrations. 

Take the case of a single individual. Suppose a 
man, by the same amount of labor that he spent last 
year, to be able this year to create twice as much 
value. Suppose that a farmer has twice as large a 
harvest ; that is, that his instrument is twice as good 
this year as it was last year. The result is, he will 
be able to satisfy the desire which that product gra- 
tifies, twice as abundantly as he did last year. He 
will have more to exchange with other producers, 
and hence he will be able to gratify other desires 
more abundantly. He will be able to make ex- 
changes which were before out of his power ; hence, 
he will be able to add to his mode of living, new 
means of happiness. And, on the other hand, as he 
is able to make exchanges with others with whom it 
was before impossible, others, in return, are able to 
avail themselves of his product or means of happiness, 
who were before unable to do so. Hence, he is not 
only happier himself; but the very means, by which 
he becomes so, render him the instrument of greater 
happiness to others. Hence, it is a benefit to a 
whole neighborhood, for a single member of it hon- 
estly to become rich. In other words, increased 
productiveness, in one branch of labor, increases 
productiveness in every branch of labor. 

Let us call this first individual A, and suppose 
that before the productiveness of his labor had been 
increased, he exchanged with another individual B, 
on equal terms. If the labor of A and B were 10 per 



EFFECTS OF INCREASED PRODUCTIVENESS. 99 

day, they would exchange with each other at the 
rate of 10 for 10. But, suppose now, that by some 
new invention, A's labor produced 20 per day. He 
would offer to exchange on the same terms as before, 
but he would offer 20, and expect from B, 20 in re- 
turn. But, in consequence of the inferior productive- 
ness of B's labor, he would not be able to purchase 
so much ; he could afford to buy only 10, as before. 
A, therefore, in order to induce him to exchange, 
that is, to buy, would abate his price ; that is, would 
offer to exchange on better terms, and would offer 
him at the rate of 20 for 15, or in some such propor- 
tion. What B would not purchase at the rate of 
10 for 10, he might be willing to purchase at the 
rate of 15 for 20. Thus, we see, they would, in 
this case, share the benefit between them. But let 
the labor of B now be increased in productiveness, 
so that it shall be equal to that of A ; that is, be also 
at the rate of 20 per day. They will now exchange 
at the same rate as before ; that is, at the rate of 20 
for 20, with this difference, that for one day's labor, 
they will both have twice as many objects of desire 
as before, or as many objects of desire, with half a 
day's labor ; that is, both will be twice as rich as be- 
fore. Thus, the increased productiveness of B, is 
now a benefit to A, inasmuch as he now receives 20 
for 20, when, before, he only received 15 for 20. 
Now it needs but a little reflection to perceive, that 
the case of A and B, is the case of the whole com- 
munity. 

But the case is made still stronger, when the ef- 
fect of competition is taken into the account. Let the 
productiveness of labor in any department be ever 
so great, where labor and capital are free, competi- 
tion will always reduce profit in one department, to 
the same average per cent, that it affords in other 
departments. Hence, let the productiveness of labor 
and capital, in any one mode of employment, be 
ever so great ; interest and wages, in that employ- 
ment, will be no higher than they are, other things 



100 EFFECTS OF INCREASED PRODUCTIVENESS. 

being equal, in other employments. That is, while 
the capitalist and the laborer receive the same inte- 
rest and wages as the rest of the community; in 
other words, while the community pay no more for 
this capital and labor than they pay for any other, 
they receive a greater amount of value in exchange, 
and, as much more, as the productiveness of that 
labor and capital has been increased. Thus, capital 
and labor in the cotton manufacture is not better 
paid, upon an average, than in other modes of in- 
vestment and industry. If it were, capital and labor 
would flow into it, until the equilibrium was restor- 
ed. But, while this is the fact, we obtain a yard of 
cotton cloth for One fourth the price, or at one fourth 
of the labor, at which we formerly obtained it ; that is, 
we receive four times as much as formerly, in return 
for what we pay for the cost and labor of making 
cotton cloth. And thus, over the whole world, 
every instance of increased productiveness, whether 
it be from the use of natural agents, or from the di- 
vision of labor, whether in our own country, or in 
another country, if we choose to avail ourselves of it, 
enables every man, by paying the producer the same 
as before, to procure a larger amount of value ; that 
is, of objects for the gratification of desire ; that is, 
enables every man to become both richer and happier. 

The above remarks will, I hope, be sufficient to 
illustrate the general principle. As, however, there 
are several consequences resulting from increased 
productiveness of human labor, especially from the 
use and improvement of natural agents, which seem 
at first view to be at variance with what we have 
here advanced, it may be necessary to pursue the 
results somewhat more minutely, and to consider 
the objection commonly made, that the use of labor- 
saving machinery is prejudicial to the interests of 
the laboring classes. 

It may, however, be here premised, that the ob- 
jection made against natural agents, is not to their 
use, but to their improvement. Men object to the use 



EFFECTS OF INCREASED PRODUCTIVENESS. 101 

of a spinning jenny, but not to the use of a spinning 
wheel. They dislike a rake by horse power, but do 
not dislike a rake. But every one must see, that 
this sort of objection, if it be founded in truth, is by 
no means sufficiently extensive. A spinning wheel, 
or a hand loom, or a hand rake, is a labor-saving 
machine; and it involves the use of natural agents, 
just as truly as a spinning jenny, a power loom, or a 
horse rake. If the use of natural agents be injuri- 
ous, we should abandon them altogether, and spin, 
and weave, and rake, with our fingers. But if 
this would be unwise, and it be conceded that we 
must use natural agents, in some form or other, why 
not use the best that we can procure ; that is, the 
best that God has given us'? If, as all must allow, 
the use of them, up to a certain point, has conferred 
an incalculable benefit, what reason have we to sup- 
pose, that additional improvement in the use of them 
will not confer still additional benefit. 

But, passing this, I proceed to consider the effects 
of increased productiveness of labor, both upon Pro- 
ducers and Consumers. 

I. The effects of natural agents upon Producers. 

These are either immediate, or ultimate. 

1. Immediate. It is said that every improvement 
in machinery enables the work to be done by fewer 
laborers, and hence many persons are thrown out of 
employment ; and that every change in the manner 
of labor, deprives many persons of the use of that 
skill, which is their whole means of subsistence. 

So far as change in the mamier of labor is con- 
cerned, but little need be said, as this is but a tem- 
porary inconvenience. If a new kind of work is to 
be done, some persons must learn to do it, and must 
be paid for learning. If a man do not choose to 
learn it, although he would be paid for learning it, 
and be supported by his labor, after he has learned 
it, it is his own fault. He may quarrel with his 
own obstinacy, but he has nothing else to blame. 
Nor is the simple change of employment a pecu- 
9* 



1-02 EFFECTS OF INCREASED PRODUCTIVENESS. 

liar hardship. Few men pass through life, with- 
out, at some time or other, materially modifying 
their mode of employment, from choice, instead of 
from necessity. 

The main difficulty, therefore, which is supposed 
to result from the use of improved methods of pro- 
duction, is, that they employ a less number of labor- 
ers ; and, hence, that many laborers are thrown out 
of employment. 

In reply to this it might be asked, what is the tes- 
timony of facts, in this case. Improvements in ma- 
chinery have been going on, ever since the creation. 
Has the demand for labor diminished? Improve- 
ments have been made in particular districts. Have 
the laborers been, by these means, driven away ; or, 
on the contrary, are not these the very districts, to 
which laborers inevitably resort for employment? 

But, aside from this, let us examine the assertion, 
that some laborers are thrown out of employment. 
Let us, however, first endeavor to ascertain how 
great the evil is. 

1. It is not universal. The improved mode of 
production always requires some labor, and, of course, 
a portion of those formerly employed must still find 
employment. To these, there results no other dis- 
advantage, than that of a change in the mode of em- 
ployment ; but with the meliorating circumstances 
of higher wages and less fatiguing labor. 

2. It is, by necessity, gradual. Improvements in 
machinery are made by slow degrees. Although 
the total change may show a greatly increased pro- 
ductiveness of labor, yet no one single change is 
often, of itself, great enough to produce a great 
change in the demand for laborers. Again : Let 
the change be ever so great, it cannot be introduced 
at once, over a whole nation. Hence, its effects will 
be, at first, to reduce the wages of those engaged in 
the former methods of manufacturing. The conse- 
quence will be, that no new laborers will learn the 
trade. This will tend to keep up the wages of those 



EFFECTS OF INCREASED PRODUCTIVENESS. 103 

who remain in it. And, lastly : If a new instru- 
ment is to be employed, there must be an additional 
number of men employed to manufacture it. This 
will, of course, require an additional number of la- 
borers, who must be withdrawn from other employ- 
ments. This will tend to raise the price of labor, and 7 
of course, either to furnish employment for those 
who wish to leave the former occupation, or else to 
keep up the wages of those who choose to remain in it. 

3. The infelicity, here spoken of, is no other than 
that which belongs to the tenure of all property 
whatsoever. Skill and labor, as well as capital, 
are always liable, in the revolutions of society, to 
depreciate in value, or even to become worthless. 
" Riches make to themselves wings, and flee away." 
The wisdom of man, since the creation, has never 
yet discovered any link strong enough to connect a 
human being, indissolubly, with any sublunary pos- 
session. The laborer, therefore, in this case, holds 
his property precisely as any other man holds it, and 
is subject to no peculiar hardship. 

Let us however proceed to consider the ultimate 
effects of increased productiveness upon producers. 

1. The producer shares with the rest of the com- 
munity in the benefit derived from increased pro- 
ductiveness ; that is, if he earn the same wages as 
before, he is richer ; and, if he earn less, he is less 
poor than he would have been, if no such change 
had taken place. That is to say, money, or, in other 
words, a given amount of labor, is capable of pro- 
curing for him a greater amount of objects of desire, 
than before. 

2. From this increased productiveness, there must 
be, throughout the whole community, an increased 
demand for labor. Suppose a community of one 
hundred men to acquire, by their labor and capital, 
every year, just enough to support themselves, after 
defraying the expenses of their several establish- 
ments. So long as this state of things continued, 
there would be no increased demand for laborers ; 



104 EFFECTS OF INCREASED PRODUCTIVENESS. 

for there would be no additional capital with which 
to maintain them. The young must therefore emi- 
grate, or else there will be a competition among la- 
borers for work, and thus wages will fall. But, 
suppose, that by some new mode of increased pro- 
ductiveness, the capital be increased in a single year, 
twenty-five per cent., there will then be a demand 
for the industry of a greater number, say twenty- 
five additional laborers ; since this additional cap- 
ital can produce nothing, unless it be united with 
labor. If there be not twenty-five additional labo- 
rers to be immediately procured, wages must rise, 
because there will be a competition among capitalists 
for labor ; and children and persons, who with the 
former prices could earn nothing, will now be em- 
ployed. And, if the demand for labor, arising from 
this increase of capital, could not be thus supplied, 
those engaged in less profitable employment in other 
districts, and other countries, would come in to sup- 
ply the deficiency. Such is always seen to be the 
fact. Population follows capital. It goes where 
capital goes, and it concentrates where capital accu- 
mulates, and it retires when capital retires. And 
hence, in a whole country, where the number of in- 
habitants is limited, the increase of capital must 
raise the rate of wages. And hence, by just so much 
as increased productiveness of labor increases the 
amount of capital, it must also tend to raise the price 
of labor throughout a whole country. That is to 
say, the obvious tendency of the use of natural agents 
is, to increase the wages of laborers in general. 

3. But, the tendency of the use of machinery is to 
increase the wages of laborers, in that very depart- 
ment of industry, in which they are employed. The 
reason for this is obvious. Reduction of price pro- 
duces an additional demand, more than sufficient to 
compensate for the diminished amount of labor ne- 
cessary for the creation of the particular product. 
That this must always be the case, can, I think, be 
conclusively shown. 



EFFECTS OF INCREASED PRODUCTIVENESS. 105 

Suppose that with the present machinery, one hun- 
dred men are able to manufacture cotton cloth at fif- 
ty cents per yard, and that the amount which they 
produce is precisely sufficient to supply the wants of 
the district for which they labor. At this price, no 
consumers, but those worth one thousand dollars per 
year, can afford to purchase cotton cloth, and, of 
course, the demand is limited exclusively to them. 
Suppose now, that improved machinery enables fifty 
men to manufacture as large an amount of cotton 
cloth as one hundred men could manufacture before, 
and the consequence is, that cotton cloth is sold at 
twenty-five cents per yard. It is evident, that if the 
demand be precisely doubled, there will be wanted 
just as many laborers as before ; so that their condi- 
tion will be in no manner altered, except by change of 
labor, with its correspondent advantages, and the 
gradual rise of wages, spoken of above. And, it is 
also evident, that every degree of increase of demand, 
beyond what is sufficient to produce this equilibrium, 
must be for the benefit of those engaged in this sort of 
labor. 

But it is evident, for several reasons, that the re- 
duction of price one half, must more than double the 
demand for cotton cloth. Thus, when the price was 
fifty cents per yard, only those consumers who were 
worth one thousand dollars per year, could purchase 
cotton cloth; and the sale was, of course, limited to 
them. But now that it is at twenty-five cents, the 
class worth only five hundred dollars per year is just 
as able to purchase it, as those worth one thousand 
were formerly. Now, if this class were only of the 
same number as that worth one thousand, the de- 
mand would be doubled, and, of course, the laborer 
would suffer no injury. But the fact is, that the 
class worth five hundred dollars, is three or four 
times as large as that worth one thousand. Hence, 
by all this difference, the laborer is the gainer, and a 
larger number of laborers is required. But this is 
not all. There are various classes, between those 



106 EFFECTS OF INCREASED PRODUCTIVENESS. 

worth one thousand dollars and those worth five 
hundred dollars, who are now able to purchase the 
article, as, those of nine hundred, eight hundred, 
seven hundred, and six hundred, each one of them 
being larger than the class of first purchasers. All 
these unite to increase the demand for this kind of 
labor. And again: The class worth one thousand 
dollars will now use a much larger amount of cotton 
cloth than formerly ; and cotton cloth will now be 
used for purposes to which it could never before have 
been appropriated, and it will supersede the use of 
many articles, with which it could never before have 
come into competition. All this is to be added to the 
benefits conferred, by the introduction of machinery, 
or by increasing the productiveness of labor, upon 
the laborers in this particular department. Every 
one must see that this benefit, thus resulting from 
increase of demand, which is the thing now under 
consideration, is absolutely incalculable. 

It may be said, that this is an exaggerated case. I 
answer: The case is not given for the sake of accu- 
racy in numbers, but for the sake of illustrating a 
manifest tendency. And, that, in this respect it is 
accurate, the whole history of manufactures bears 
ample testimony. Compare those states of society 
in which machinery is not used, with those in which 
it is used, and inquire in which of them the wages of 
the laborer are higher, and in which his habitation dis- 
plays the greater number of comforts, and in which 
his shelf is covered with the greater number of 
books. Examine the statistics of a particular branch 
of manufacture, and inquire in what period there 
has been, in proportion to the whole population, the 
greatest number of laborers required in that particu- 
lar manufacture. Has this demand for this particu- 
lar kind of labor been greater in the period when 
natural agents and machinery have been used, or in 
that in which they have not been used? The an- 
swer to these questions is given in the history of the 
progress of the cotton manufacture, the manufacture 



EFFECTS OF INCREASED PRODUCTIVENESS. 107 

of books, of nails, of pins, and every other article 
of common use : and such articles alone are of any 
consequence in such an estimate. This shows that 
the above illustration is. t?-ue, so far as it teaches the 
tendency, which is all that is necessary in the pre- 
sent case. 

But this is not all. Suppose the demand for cot- 
ton cloth to be doubled, there must be twice the 
amount of cotton produce^; twice as many vessels 
built, to transport it ; twice, as many men to navigate 
them; besides the number of men required to con- 
struct machinery to fabricate it. Suppose the num- 
ber of books be doubled; there must be twice as 
much paper made, twice as many rags purchased, 
twice as many types made, and twice as much 
transportation required for the supply of the market. 
All this must add to the demand for labor, and must 
tend, by just so much, to increase the wages of the 
operative. And hence, if these considerations be 
compared, it will be seen: 

1. That the introduction of machinery reduces the 
price of articles of consumption; that is, renders the 
wages, whatever they may be, of the operative, of 
more value. 

2. That, by the more rapid multiplication of capi- 
tal, it produces a greater demand for labor in general, 
that is, it makes the wages of all labor greater ; and 

3. That its tendency is to create an increased de- 
mand for labor; that is, to produce a rise of wages 
in that department of industry, into which natural 
agents are specially introduced; and it does this ac- 
cording to the degree in which they are introduced. 
That is, in general, the introduction of machinery 
renders the wages of the laborer more valuable; it 
raises the wages of labor in general, and raises the 
wages of labor specially, in that department in which 
natural agents are employed. What any man can 
reasonably ask for, more than this, I do not distinct- 
ly perceive. 

II. The effects of increased productiveness upon 



108 EFFECTS OF INCREASED PRODUCTIVENESS. 

consumers may be easily explained, on the princi- 
ples already illustrated. I need not, therefore, en- 
large upon this subject, as it has already been so fre- 
quently alluded to. 

1. By increased productiveness, every consumer 
is richer ; that is, he is able, by the same amount of 
labor, to procure a greater amount of the objects of 
desire. This is evidently the same thing to him, as 
though his income were increased. If I am able, 
this year, with two hundred dollars, to purchase as 
much as I could purchase last year for four hundred 
dollars, and I can earn two hundred dollars, as easily 
as before, it is precisely the same thing, as if, at the 
former prices, my wages had risen from two hundred 
to four hundred dollars. 

2. Production is more perfect. This has already 
been illustrated, as one of the effects of the use of 
machinery ; that is, the consumer not only obtains 
more of the same article for the same sum of money, 
but he also obtains a better article. Every one must 
have observed, that calicoes, crockery, and many 
other articles of ordinary consumption, are not only 
much cheaper, but also much more beautiful, than 
they were a few years since. 

3. A vast number of articles is thus added to the 
means of happiness of the human race, of which, 
otherwise, they must, from necessity, have been de- 
prived. All that we possess, above the comforts of 
the naked savage, is the result of the use of natural 
agents, and of division of labor ; that is, of the in- 
creased productiveness of human labor. 

4. Nor is this all. While all the labor of man is 
necessary to support mere physical existence, there 
can be no opportunity for intellectual cultivation. 
As soon, however, as he arrives at that condition of 
productiveness of labor, in which he is able to pro- 
vide for his physical wants, witli less than all his 
time and effort, opportunity is afforded for intellec- 
tual developement. At this point, commences the 
dawn of intellectual improvement. As increased 



EFFECTS OF INCREASED PRODUCTIVENESS. 109 

productiveness affords more abundant leisure, improve- 
ment advances. As soon again, as, by improved 
intellectual power, man begins to discover and apply 
the laws of nature, a vast accession is made to the 
power of human productiveness. Henceforth, these 
two forces conspire to assist each other. Increased 
productiveness allows of increased time for investiga- 
tion, discovery, and invention ; and discovery and in- 
vention increase the power of productiveness. The 
more actively these act and re-act upon each other, 
the more rapid is the progress of society, and the 
more rapidly accelerated is the movement of civili- 
zation. 

If this be so, we see how puerile is the prejudice 
which frequently exists against the use of labor- 
saving machinery, since the introduction of such 
machinery, more than any thing else, tends perma- 
nently to improve the condition of the laborer. We 
see, also, how groundless is the opinion, that education 
and science are without practical benefit, and that 
philosophers and students are merely a useless bur- 
then upon the community ; since it is knowledge 
which has given to us all the advantages which we 
possess over savages, and it is the application of that 
knowledge, which furnishes employment for nine- 
tenths of the whole community. We see, also, how 
short-sighted is that national selfishness, which de- 
sires to limit and restrict the intercourse between 
nations ; since it is for the interest of each nation to 
improve, to the utmost, its own advantages, and to 
procure, by exchange with other nations, those pro- 
ductions for the creation of which it possesses, by 
nature, inferior facilities. 
10 



110 , 



CHAPTER THIRD. 

OF THE LAWS WHICH GOVERN THE APPLICATION OF LABOPv 
TO CAPITAL. 

We have, thus far, considered capital and labor, 
separately, and have endeavored to analyze the 
nature and functions of each. It is manifest, how- 
ever, that we have not yet exhausted the subject. 
In many countries, a vast amount of capital and 
of labor has never yet been employed. In other 
countries, capital and labor have been united at 
different periods, with different degrees of success. 
Hence, while some nations have rapidly accumulat- 
ed wealth, the wealth of others has remained, for 
years, stationary ; and in others, it has diminished. 
The most fertile soils of Europe and Asia, once the 
garden of the world, now under the despotism of 
Turkey, scarcely maintain their sparsely settled in- 
habitants. It remains for us, therefore, to proceed 
with our investigation, in order, if possible, to ascer- 
tain the laws which influence the application of labor 
to capital. 



SECTION I. 

THE CONDITIONS OF OUR BEING, ON WHICH THE LAWS ON 
THIS SUBJECT ARE FOUNDED. 

In order to arrive at the truth with the greater 
certainty, it will be proper to consider the circum- 
stances under which man is placed, with reference 
to the universe around him, so far as this subject is 
considered. 



CONDITIONS OF PRODUCTION. Ill 

1. God has created man with physical and intel- 
lectual faculties, adapted to labor. He has given us 
a mind, adapted to investigate the laws of the uni- 
verse, and a body adapted to perform all those ope- 
rations by which, in obedience to those laws, the 
objects of desire may be produced. 

2. Labor has been made necessary to the attain- 
ment of the means of happiness. No valuable object 
of desire can be procured without it. Intellectual 
power cannot be attained without intellectual disci- 
pline ; nor a knowledge of the laws of nature, without 
study. Neither physical comforts, nor even physical 
necessaries, can be obtained, unless labor be first 
expended to procure them. The universal law of 
our existence is, " In the sweat of thy face shalt 
thou eat thy bread." 

3. Labor is necessary to the healthful condition of 
our powers, both physical and intellectual. Without 
intellectual labor, the mind becomes enfeebled ; and, 
were this labor wholly intermitted, it would sink 
into idiocy or madness. Without physical labor, 
the body, feeble and enervated, becomes a prey to 
pain and disease. 

4 That labor, per se, is pleasant, it is not neces- 
sary to assert. It is sufficient to our purpose, that 
it is less painful than idleness and the results of idle- 
ness. The laborer complains of his toil, but deprive 
him of his opportunity for toil, and he becomes mise- 
rable. When men are, in our penitentiaries, condemn- 
ed to solitary confinement, and labor or idleness are 
left purely to their own choice, they have never been 
known to continue longer than a few days, without 
beseeching, importunately, for work. The veterans 
who are supported at Greenwich Hospital, England^ 
at the public expense, wholly without labor, are said 
to be, in general, very unhappy. The uncontrollable 
desire of children for some sort of employment, illus- 
trates the same truth. Those persons who consider 
labor as degrading, obey the same law of our nature 
in another form. The gymnastic exercises of the 



112 CONDITIONS OF PRODUCTION. 

Greeks and Romans, and the hunting, riding, shoot- 
ing, and traveling of the moderns, are nothing more 
than expensive modes of exercise or labor. The 
poor man exercises himself, the rich man employs a 
horse to exercise him. The one does expensively 
and unproductively, what the other does Avithout 
expense and productively. Both equally yield obe- 
dience to the law of our creation ; and, in what 
manner soever it is obeyed, both reap advantages, 
from the mere fact of obeying it. 

5. On the contrary, the Creator has affixed several 
penalties, which those who disobey this law of their 
being, can never expect to escape. He who refuses 
to labor with his mind, suffers the penalty of igno- 
rance. The amount of this penalty may be esti- 
mated, by considering the blessings, both physical 
and intellectual, of which ignorance deprives us ; 
and by contrasting the comforts of savage with 
those of civilized nations, where the physical effort, 
made by both, is the same. He who refuses to labor 
with his hands, suffers, besides the pains of disease, 
all the evils of poverty, cold, hunger, and nakedness. 
The results which our Creator has attached to idle- 
ness, are all to be considered as punishments, which 
he inflicts for the neglect of this established law of 
our being. 

6. And, on the other hand, God has assigned to 
industry, rich and abundant rewards. " The hand 
of the diligent maketh rich." " Seest thou a man 
diligent in his business, he shall stand before kings ; 
he shall not stand before mean men." The pleasure, 
the independence, and the power arising from know- 
ledge, are the rewards of intellectual industry. " A 
wise man is strong, yea, a man of understanding in- 
creaseth strength." And it is only by physical labor, 
that the riches of the earth are appropriated, and the 
laws of nature made available to the happiness of 
man. At the first, there existed nothing in our 
world but the earth, with its spontaneous produc- 
tions, and capabilities, and helpless and defenceless 



CONDITIONS OF PRODUCTION. 113 

man. All that now exists of capital, of convenience, 
of comfort, and of intelligence, is the work of indus- 
try, and is the reward which God has bestowed 
upon us for obedience to the law of our being. 

7. If such be the facts ; if God have given to all 
men faculties for labor ; if he have made labor neces- 
sary to our happiness ; if he have attached the se- 
verest penalties to idleness, and have proffered the 
richest rewards to industry ; it would seem reasona- 
ble to conclude, that all that was required of us, 
was, so to construct the arrangements of society, as to 
give free scope to the laws of Divine Providence. If 
he have excited us to labor by sufficient rewards, 
and deterred us from indolence by sufficient penal- 
ties, it would seem that our business must be, to give 
to these rewards and penalties their free and their 
intended operation. These, at any rate, should be 
the means first tried, in order to facilitate produc- 
tion ; nor should any others be resorted to, until 
these have been tried and found ineffectual. 

The effects of this constitution, under which we 
are placed, will, I think, be fully exerted, in propor- 
tion as the following conditions are observed : 

1. As every man is permitted to enjoy, in the 
most unlimited manner, the advantages of labor. 

2. As every man suffers the consequences of idle- 
ness. 

And, these being equal, 

3. Labor will be applied to capital, according to 
the ratio which subsists between the whole amount 
of capital and the whole number of laborers ; that is, 
the greater the ratio of capital to the number of 
laborers, the more active will be their industry, and 
vice versa. And, 

4. Labor will be applied to capital, in proportion 
to the knowledge which men possess of the advan- 
tages which they shall obtain by labor ; that is, the 
greater the intelligence, the greater the industry. 
To these several topics, the remaining sections of 
this chapter will be devoted. 

10* 



114 FREEDOM OF LABOR AND CAPITAL. 



SECTION II. 

INDUSTRY WILL BE APPLIED TO CAPITAL, AS EVERY MAN 
ENJOYS THE ADVANTAGES OF HIS LABOR AND HIS CAPITAL. 

Although God has designed men to labor, yet he 
has not designed them to labor without reward. 
Hence, when men devise some form of labor, even 
for exercise, they always connect with it some result, 
as the game of the huntsman, or the watering place 
of the traveler or tourist. Thus, also, as it is unna- 
tural to labor without receiving benefit from labor, 
men will not labor continuously nor productively, 
unless they receive such benefit. And, hence, the 
greater this benefit, the more active and spontane- 
ous will be their exertion. 

In order that every man may enjoy, in the great- 
est degree, the advantages of his labor, it is necessa- 
ry, provided always he do not violate the rights of 
his neighbor, 1st, That he be allowed to gain all that 
he can; and, 2d. That, having gained all that he 
can, he be allowed to use it as he will. 

1. It is necessary that every man be allowed to gain 
all that he can ; that is, that the arrangements of 
society be so constructed, that every man be able to 
render his labor, in the highest degree, available to 
himself. This will require, 

2. That property be divided. When property is 
held in common, every individual of the society to 
which it belongs, has an equal, but an undivided 
and indetermined right to his portion of the revenue. 
Hence, every one is at liberty to take what he will, 
and as much as he will, and to labor as much or as 
little as he pleases. There is, therefore, under such 
an arrangement, no connection between labor and the 
rev)ards of labor. There is rather a premium for 
indolence than for industry. In such a case, there 



DIVISION OF PROPERTY. 115 

will be no regular labor, if indeed there be any labor 
at all ; and, what is still worse, even the scan- 
ty and spontaneous productions of the earth will 
frequently be gathered before they are ripe, since 
every one fears, that, if he do not seize them now, he 
will never enjoy them at all. The forest of an In- 
dian tribe is held in common, and a few hundred 
families barely subsist upon a territory which, were 
it divided and tilled, would support a million of 
civilized men. The little that it produces to him, is 
the result of division of property. His bow and 
arrows, his wigwam, and his clothing are acknow- 
ledged to be, in the fullest sense, his own. Were 
these to be held, like his land, in common, the whole 
race would very soon perish, from want of the neces- 
saries of life. 

On the contrary, as soon as land with all other 
property is divided, a motive exists for regular and 
voluntary labor, inasmuch as the individual knows 
that he, and not his indolent neighbor, will reap the 
fruit of his toil. Henceforth he begins to create a 
regular supply of annual product. With increased 
skill, this annual product increases, and he begins 
to convert it into fixed capital, a form of wealth 
which could scarcely exist without division of pro- 
perty. Every accession to his fixed capital renders 
his labor more productive, and hence it creates a 
stronger stimulus to increased exertion. With in- 
creased exertion, his annual capital is increased, and 
a greater surplus remains to be changed into fixed 
capital. Thus, increased production stimulates in- 
dustry, and increased industry results in more abun- 
dant production. Thus, division of property, or 
the appropriation, to each, of his particular portion 
of that which God has given to all, lays at the foun- 
dation of all accumulation of wealth, and of all 
progress in civilization. 

It is for this reason that property held in com- 
mon, is so generally prejudicial to the best interests 
of a society. A common, where every one, at will, 



116 DIVISION OF PROPERTY. 

may pasture his cattle, and a forest, from which 
every inhabitant may procure his fuel, are encour- 
agements to indolence, and serve to keep a com- 
munity poor. Thus, also, funds left at large for 
the support of the poor, on which every one is sup- 
posed to have an equal right to draw, have general- 
ly been found to foster indolence. Poor laws, in so 
far as they are to be considered a fund for this pur- 
pose, have the same sort of injurious tendency. 

2. But the division of property would be of no 
avail unless the right of property ivere enforced; that 
is, unless every one be protected in the undisturbed 
possession of whatever he has rightfully acquired. 
As no one will labor, unless he knows that he shall 
reap the fruit of his toil, so no one will take the pains 
to reap the fruit of his toil, unless he also know that 
he will be able to hold it, and appropriate it to the 
purposes of his own gratification. And, hence, we 
see that human labor is exerted in different countries, 
very much in proportion as the right of property is 
both understood and enforced. 

The right of property may be violated by the in- 
dividual or by society. It is violated by the indivi- 
dual, by cheating, stealing, robbery, and violation of 
contracts. And, universally, just as these crimes 
prevail, production languishes, industry diminishes, 
and the richest soil fails to support its few and im- 
poverished inhabitants. Such was the case in Eu- 
rope, during the feudal oppression. There was then 
no encouragement to labor, because no one knew 
whether he, or a baronial tyrant, would reap the fruit 
of his industry. 

Hence, We see the economical importance of all 
means which shall prevent the individual violation 
of the right of property. These means are two. 

The first is, the inculcation of those moral and 
religious principles, which teach men to respect the 
rights of others as their own, that is, to obey the law 
of reciprocity; and which present the strongest con- 
ceivable reasons for so doing. This is the most cer- 



THE RIGHT OF PROPERTY. 117 

tain method of preventing the violation of the right 
of property, inasmuch as it aims to eradicate those 
dispositions of mind, from which all violation pro- 
ceeds. It is also the cheapest, as it aims at preven- 
tion, which is always more economical than cure. 
It is also necessary, inasmuch as good laws will nev- 
er be enacted, or if enacted, will never be obeyed, 
only in so far as there exists a moral character in 
the community sufficiently pure to sustain them. In 
proportion as these are efficacious, all other means 
are needless. Hence, we see the reason why moral 
and religious nations grow wealthy so much more 
rapidly than vicious and irreligious nations. The 
feeling of perfect tranquility and security, which a 
high social morality diffuses over a whole communi- 
ty, is one of the most beneficial, as well as one of 
the strongest stimulants to universal industry. This 
is one of the temporal rewards which God bestows 
upon social virtue. And, inasmuch as no one can 
enjoy this reward, simply by being virtuous himself, 
but only as his fellow citizens also are virtuous, we 
see the indication in our constitution, that it is the 
duty, as well as the interest, of every man, to labor 
to render other men more virtuous. 

2. But inasmuch as all men are not influenced in 
their conduct by moral and religious principles, it is 
necessary that aggression be somehow prevented, 
and violations of property, in so far as possible, re- 
dressed. Hence, the importance of wholesome and 
equitable laws, of an independent and firm judiciary, 
and an executive, which shall carry the decisions of 
law faithfully into effect. Hence the expense, neces- 
sary for the most perfect administration of justice, 
is among the most productive of all the expenditures 
of society. Good law, and the faithful administra- 
tion of it, are always the cheapest law, and the 
cheapest administration of it. The interests of man 
require that law should be invariably executed, and 
that its sovereignty should, under all its circumstan- 
ces, be inviolably maintained. 



118 THE EIGHT OF PROPERTY. 

But the right of property may be violated by so- 
ciety. It sometimes happens, that society or govern- 
ment, which is its agent, though it may prevent the 
infliction of wrong by individuals upon each other, 
is by no means averse to inflicting wrong or violating 
the right of individuals itself. This is done, where 
governments seize upon the property of individuals 
by mere arbitrary act, a form of tyranny, with 
Avhich all the nations of Europe were, of old, too 
well acquainted. It is also done, by unjust legisla- 
tion ; that is, when legislators, how well soever 
chosen, enact unjust laws, by which the property of 
a part, or of the whole, is unjustly taken away, 
or what is the same thing subjected to oppressive 
taxation. 

Of all the destructive agencies which can be 
brought to bear upon production, by far the most 
fatal, is public oppression. It drinks up the spirit 
of a people, by inflicting wrong through means of 
an agency which was created for the sole purpose of 
preventing wrong ; and which was intended to be 
the ultimate and faithful refuge of the friendless. 
When the antidote to evil, becomes the source of 
evil, what hope for man is left 1 When society 
itself sets the example of peculation, what shall 
prevent the individuals of the society from imitating 
that example ? Hence, public injustice is always 
the prolific parent of private violence. The result 
is, that capital emigrates, production ceases, and a 
nation either sinks down in hopeless despondence ; 
or else the people, harassed beyond endurance, and 
believing that their condition cannot be made worse 
by any change, rush into all the horrors of civil 
war ; the social elements are dissolved ; the sword 
enters every house ; the holiest ties which bind men 
together are severed ; and no prophet can predict, 
at the beginning, what will be the end. 

Hence we see the importance to the industry of a 
country, of a constitution which guarantees, to the 
individual, immunity not only from private, but 



FREEDOM OF INDUSTRY AND CAPITAL. 119 

also from public oppression. Wherever this immu- 
nity is wanting, the progress of a nation in wealth 
will be slow. It is owing rather to the freedom of 
her institutions and the equity of her laws, than to 
her physical advantages, that Great Britain has so far 
outstripped all other European nations in the accu- 
mulation of wealth, and in every thing that confers 
social power. It is almost superfluous, however, to 
add, that a free constitution is of no value, unless 
the moral and intellectual character of a people be 
sufficiently elevated to avail itself of the advantages 
which it offers. It is merely an instrument of good, 
which will accomplish nothing, unless there exist 
the moral disposition to use it aright. 

To sum up what has been said : Labor will be 
applied to capital, in proportion as every man is al- 
lowed to gain all that he can ; that is, as property 
is most perfectly divided ; and as this division is 
most strictly enforced ; that is, as the right of pro- 
perty is guarded by the most equitable laws ; and as 
there exist the strongest guarantees that these laws 
will be inviolate, whether they relate to individuals 
or to society. 

II. The second part of the condition mentioned in 
the beginning of this section is, that the individual 
be allowed to use his own as he will. To this, is of 
course to be added the condition, that he use it in 
such manner, as not to interfere with the rights of 
his neighbor. 

A man's possessions are his talents, faculties, skill, 
and the wealth and reputation which these have en- 
abled him to acquire ; in other words, his industry 
and his capital. In order that industry be applied 
to capital with the greatest energy, it is necessary 
that every man be at liberty to use them both as he 
will ; that is, that both of them be free. 

And first, of industry. The aptitudes of men for 
different employments are very dissimilar. The 
choice of every man naturally leads him to that em- 
ployment for which he is best adapted. By allow- 



120 FREEDOM OF INDUSTRY AND CAPITAL. 

ing every man, therefore, to employ his industry as 
he chooses, every man will be employed about that 
for which he is best adapted ; and hence, the pro- 
duction of all will be greatly increased, because we 
thus avail ourselves of the 'peculiar productiveness 
of every individual. Nor is this all. By allowing 
every man to labor as he chooses, we very greatly 
increase the happiness of every individual. And 
every one knows that a man will labor with better 
success when his labor is pleasant, than when it is 
irksome. 

The case is the same with respect to capital. 
Every man is more interested in his own success, 
than any other man can be interested in it. Hence, 
every man is likely to ascertain more accurately in 
what manner he can best employ his capital, than 
any other man can ascertain it for him. If every 
man, therefore, be allowed to invest his capital as 
he will, the whole capital of a country will be more 
profitably invested, than under any other circum- 
stances whatever. And, since, when he is left thus 
at liberty, there will be the greatest gain to the capi- 
talist, there will also be the greatest stimulus to his 
industry ; for the stimulus to labor is always in pro- 
portion to the rewards of labor. And, on the con- 
trary, in just so far as, by any means, this produc- 
tiveness is diminished, the stimulus to labor is also 
diminished with it. 

It may be said that men, if left to themselves, will 
be liable to invest their capital unwisely. Granted. 
Man is not omniscient, and therefore this liability 
cannot be avoided. The question, therefore, is, how 
shall it be rendered as small as possible. Will a 
man, who reaps the benefit of success and suffers 
the evils of failure, be less likely to judge correctly, 
than he whose faculties are quickened by no such 
responsibility? Nor is this all. Not only are legis- 
lators, who generally assume the labor of directing 
the manner in which labor or capital shall be em- 
ployed, in no manner peculiarly qualified for this 



FREEDOM OF INDUSTRY AND CAPITAL. 121 

task ; they are, in many respects, peculiarly disqua- 
lified for it. The individual is liable to no peculiar 
biases, in making up his mind in respect to the pro- 
fitableness of an investment. If he err, it is because 
the indications deceive him. The legislator, besides 
being liable to err by mistaking the indications, is 
liable to be misled by party zeal, by political intrigue, 
and by sectional prejudice. What individual would 
succeed in his business, if he allowed himself to be 
influenced in the manner of conducting it, by such 
considerations ? And must not like causes always 
produce like results'? 

Besides, every man feels, instinctively, that he 
has a right to use his capital and his industry as he 
pleases, provided he interfere not with the rights of 
another ; and that, to restrict him in this use, is in- 
justice. We have before said, that nothing paralyzes 
industry like oppression, and it is as true in this 
case, as in any other. If this sort of interference be 
violent or frequently repeated, capital and labor, 
whose motto like that of Dr. Franklin is, " Where 
liberty dwells, there is my country," will emigrate 
to some more congenial social atmosphere. And if 
the interference be not so intolerable as to produce 
these results, yet, in just so far as it has any effect, it 
is all of this kind, and, by its whole operation, must 
diminish the incitements to industry. 

And, on the contrary, just in proportion as every 
individual is free to employ his industry and capital 
as he chooses, and thus both to receive a larger com- 
pensation for his labor, and also to labor more hap- 
pily, will be the inducements to industry and to the 
investment of capital. 

If this be so, we see the impolicy of several forms 
of legislative interference, in relation to this subject. 
. 1. We see what must be the effects of monopolies. 
A monopoly is an exclusive right granted to a man, 
or to a company of men, to employ their labor or 
capital in some particular manner. Such was the 
exclusive right granted to the East India Company, 
11 



122 FREEDOM OF INDUSTRY. 

to import into the ports of Great Britain, or her ter- 
ritories, the productions of all countries east of the 
Cape of Good Hope. Such were the privileges 
granted formerly by Spain, to particular individuals 
or companies, of importing foreign commodities into 
the ports of her colonies in South America. The 
result of this exclusion was to prevent all other per- 
sons, except those thus favored, from investing 
their capital in this manner ; and hence, to re- 
duce the value of that capital, by precisely the 
amount of this effect. Nor is this all. Those who 
hold this exclusive privilege, being liable to no com- 
petition, might charge for their commodities whatev- 
er they choose. Here is, therefore, a two-fold injus- 
tice ; first, the means of the consumer are diminish- 
ed ; and secondly, the price which he must pay, is 
enhanced at the mere will of his oppressor. 

2. Hence we see the impolicy of obliging an indi- 
vidual, or a class of individuals, to engage in any 
labor, or to make any investment, contrary to their 
wishes. Thus, we are told that during the French 
revolution, some individuals were punished, capital- 
ly, for raising cattle, instead of wheat. Men may 
call this legislation, but the true name for it is robbe- 
ry. To oblige a man to raise a crop worth fifteen 
dollars per acre, when he would otherwise have raised 
one worth twenty dollars per acre, is just the same 
thing as to let him do as he pleases, and then rob 
him of five dollars an acre afterwards. The wrong 
is the more intense, in the former case, inasmuch 
as it is done under the semblance of justice, and 
by men who claim, as the robber does not, that 
they have the right to do it. Such legislation as 
this will, in any country, soon produce a famine. 

3. Another form of injury under this class, is seen 
in the restrictions upon industry, formerly, if not 
now, existing in many of the countries of Europe. 
By these regulations, artisans were prohibited the 
exercise of more than one trade ; they were not al- 
lowed to exercise that trade, unless they had served 



FREEDOM OF INDUSTRY. 123 

a prescribed apprenticeship ; nor unless they joined 
a particular trade-society, and bound themselves to 
comply with certain restrictions, as, for instance, to 
sell at particular prices, and never to employ beyond 
a certain number of apprentices. The result of all 
this oppression is most iniquitous. It reduces the 
value of skill and industry, the sole estate of the 
laborer ; and places him in the power of those whose 
interest it is to reduce the supply as much as possi- 
ble, in order to secure to themselves the most exorbi- 
tant profit. In such cases, a large amount of avail- 
able industry must be kept out of employment ; and, 
of course, production is, to this whole amount, di- 
minished. 

4. The same effect is partially produced by any 
mode of legislation, by which, in consequence of 
favor shown to one party, which of course another 
party must pay for, men are obliged to exchange an 
employment, for which they have peculiar facilities, 
for another which they do not prefer, and for which 
they have not the same facilities. The manner, in 
which this would lessen the stimulus to industry, has 
already been illustrated. Thus, should our govern- 
ment, believing that commerce was more valuable 
to this country than manufactures, lay a tax, suffi- 
cient to meet the expenses of the government, upon all 
American manufactures, in order to increase the 
amount of foreign importation, this would drive man- 
ufacturers out of business and oblige them to become 
merchants and agriculturists. I think that every one 
must see that this would diminish the stimulus to 
industry throughout the whole country. Men would 
not voluntarily engage in manufactures in preference 
to commerce, unless they found manufactures to be 
more profitable ; and to oblige them to exchange the 
one for the other, is, therefore, to oblige them to leave 
a more productive for a less productive mode of em- 
ployment. By all this difference is the country the 
loser, and the incitement to industry diminished. 

5. Hence, we also see the impolicy of laws regu- 



124 • PREVENTION OF IDLENESS. 

lating consumption. Such are sumptuary laws ; or 
those which limit the degree of expensiveness in our 
dress, clothing, or equipage. These were formerly 
common in Europe. Such also are laws which for- 
bid or restrict the expenditure of money for the pur- 
poses of benevolence, religion, or any thing of this 
sort. Every one must see that one of the incite- 
ments to industry, is the pleasure which men expect 
to derive from expenditure. Now, if this expendi- 
ture be innocent, it matters not what sort of expen- 
diture it is. Society has nothing to do with it ; and 
it can in no manner interfere with it, without doing 
injustice, and taking away one of the strongest in- 
ducements to industry. 



SECTION III. 

LABOR WILL BE APPLIED TO CAPITAL IN PROPORTION AS 
EVERY MAN SUFFERS THE INCONVENIENCES OF IDLENESS. 

If God have made labor necessary to our well 
being, in our present state ; if He have set before us 
sufficient rewards to stimulate us to labor; and if 
He have attached to idleness correspondent punish- 
ments, it is manifest that the intention of this con- 
stitution will not be accomplished, unless both of 
these classes of motives are allowed to operate upon 
man. We shall, therefore, co-operate with Him, in 
just so far as we allow his designs to take effect in 
the manner he intended. 

Now this result will be accomplished, 
1. By the division of property. When property is 
perfectly divided, and every thing is owned by some 
one, and every one knows what is his own, nothing 
is left in common. Of course, no man can then ob- 
tain any thing more than he now possesses, unless 
he obtain it by labor. And as every man has facul- 



PREVENTION OF IDLENESS. 125 

ties capable of labor, and as these are exclusively 
his own ; and as every one, who possesses capital, 
desires to employ labor with which to combine it, 
every man who possesses his natural faculties, has 
the means by which he may obtain something for his 
subsistence. The division of property is thus favor- 
able to the laborer ; inasmuch as, in consequence of 
it, every one needs his labor, and also has something 
to give him in exchange for it. 

2. But suppose property to be universally divided. 
A man may possess himself, either dishonestly or by 
begging, of the property for which he has not labor- 
ed. The dishonest acquisition of property, as by 
cheating, stealing, or robbery, will be prevented by the 
strict and impartial administration of just and equi- 
table laws. Hence, we see that the benefit of such 
laws is two-fold. They encourage industry, first, 
by securing to the industrious the righteous reward 
of their labor; and, secondly, by inflicting upon the 
indolent the just punishment of their idleness ; or 
rather, by leaving them to the consequences which 
God has attached to their conduct. Being thus 
thrown upon their own resources, they must obey 
the law of their nature, and labor, or else suffer the 
penalty and starve. 

If any man complain that this is a hardship, he 
must mean that this hardship has reference to our re- 
lations either to man or to God. So far as our rela- 
tions to man are concerned, there can certainly be 
no hardship ; for every thing that we see is the re- 
sult of labor, and is either the result of the labor of 
him that holds it, or of him who voluntarily parted 
with it for an equivalent in labor. Now, as every 
thing we see is the result of labor, the question is, 
who shall enjoy this result of labor, he who has la- 
bored, or he who has not. If it be a hardship for a 
man not to enjoy that for which he has not labored ; 
it would certainly be a much greater hardship for a 
man not to enjoy that for which he has labored. So 
that, the hardship would be greater if the system 
11* 



126 POOR LAWS. 

were arranged to suit the complainant, than it is now, 
under the system of which he complains. 

If the hardship turn upon our relations to God ; 
that is, if a man complain because God made him to 
labor, it is a difficulty which the complainant must 
settle with his Maker. We have nothing to do with 
it. But since God has ordained it, we cannot help 
it, and an indolent man has no just cause of grief 
with his fellow men, if they see fit to act according 
to it. 

II. But men may be relieved from the necessity 
of labor, by charity. It will be understood that I 
here speak of men as poor from indolence, and not 
by visitation of God. I do not here refer to the sick, 
the infirm, the aged, the helpless, the widow, the 
fatherless, and the orphan. When God has seen fit 
to take away the power to labor, he then calls upon 
us to bestow liberally, and he always teaches us, 
that this mode of expenditure of our property is 
more pleasing to him than any other. With this 
mode of charity I have now nothing to do. I speak 
only of provisions for the support of the poor, sim- 
ply because he is poor ; and of provisions to supply 
his wants, without requiring the previous exertion of 
his labor. Of this kind are poor laws, as they are 
established in England, and in some parts of our 
own country, and permanent endowments left to 
particular corporations for the maintenance of the 
simply indigent. Now such provisions we sup- 
pose to be injurious, for several reasons. 

1. They are at variance with the fundamental law 
of government, that he who is able to labor, shall 
enjoy only that for which he has labored. If such 
be the law of God for us all, it is best for all, that all 
should be subjected to it. If labor be a curse, it is 
unjust that one part, and that the industrious part, 
should surfer it all. If, as is the fact, it be a bless- 
ing, there is no reason why all should not equally 
enjoy its advantages. 

2. They remove from men the fear of want, one 



POOR. LAWS. 127 

of the most natural and universal stimulants to la- 
bor. Hence, in just so far as this stimulus is re- 
moved, there will be, in a given community, less labor 
done ; that is, less product created. 

3. By teaching a man to depend upon others, 
rather than upon himself, they destroy the healthful 
feeling of independence. When this has once been 
impaired, and the confidence of man in the connec- 
tion between labor and reward is destroyed, he be- 
comes a pauper for life. It is in evidence, before the 
committee of the British House of Commons, that, 
after a family has once applied for assistance from 
the parish, it rarely ceases to apply regularly, and 
most frequently in progress of time for a larger and 
larger measure of assistance. 

4. Hence, such a system must tend greatly to in- 
crease the number of paupers. It is a discourage- 
ment to industry, and a bounty upon indolence. 
With what spirit will a poor man labor, and retrench, 
to the utmost, his expenses, when he knows that he 
shall be taxed to support his next-door neighbor, 
who is as able to work as himself; but who is re- 
lieved from the necessity of a portion of labor, mere- 
ly by applying to the overseer of the poor for aid. 

5. They are, in principle, destructive to the right 
of property, because they must proceed upon the 
concession, that the rich are under obligation to sup- 
port the poor. If this be so ; if he who labors be 
under obligation to support him that labors not; then 
the division of property and the right of property 
are at an end : for, he who labors has no better right 
to the result of his labor, than any one else. 

6. Hence, they tend to insubordination. For, if 
the rich are under obligation to support the poor, 
why not to support them better 1 nay, why not to 
support them as well as themselves ? Hence the more 
provision there is of this kind, the greater will be the 
liability to collision between the two classes. 

If this be so, we see, that in order to accomplish 



128 POOR LAWS. 

the designs of our Creator in this respect, and thus 
present the strongest inducement to industry, 

1. Property should be universally appropriated, 
so that nothing is left in common. 

2. The right of property should be perfectly pro- 
tected, both against individual and social spoliation. 

3. There should be no funds in common provided 
for the support of those who are not willing to labor. 

4. That if a man be reduced, by indolence or pro- 
digality, to such extreme penury that he is in dan- 
ger of perishing, he should be relieved, through the 
medium of labor ; that is, he should be furnished 
with work, and be remunerated with the proceeds. 

5. That those who are enabled only in part 
to earn their subsistence, be provided for, to the 
amount of that deficiency, only. 

And hence 5 that all our provisions for the relief of 
the poor, be so devised as not to interfere with this 
law of our nature. By so directing our benevolent 
energies, the poor are better provided for ; they are 
happier themselves ; and a great and constantly in- 
creasing burden is removed from the community. 
It has been found that alms-houses, conducted on 
this plan, will support themselves ; and sometimes 
even yield a small surplus revenue. This surplus, 
however, should always be given to the paupers, and 
should never be received by the public. The prin- 
ciple should be carried out, that the laborer is to 
enjoy the result of his industry. 

For the same reason, penitentiaries and State pri- 
sons should always be places of assiduous and 
productive labor. Idleness is a most prolific parent 
of crime. If the vicious could be accustomed to la- 
bor, one half of their reformation would be effected. 

Besides, by this means, a great diminution would 
be effected in the expense to the community. There 
can be no reason why a hundred able-bodied men, 
and such are generally the tenants of our prisons, 
should not both support themselves, and pay for the 



RATIO OF CAPITAL TO LABOR. 129 

superintendence necessary to their labor. In a well 
regulated prison, they will always do this. There 
must always be something deeply culpable in the 
arrangements of such an institution, where this is 
not the result. 

And thus, where a society is so organized, that 
every man is left to suffer the results of idleness ; that 
is, where labor is made necessary to the acquisition 
of every thing desirable, and where the results of that 
labor are most perfectly secured to the laborer, there 
will exist the greatest stimulus to labor, and, of 
course, production will be most rapidly augmented. 



SECTION IV. 

THE GREATER THE RATIO OF CAPITAL TO LABOR, THE 
GREATER WILL BE THE STIMULUS TO LABOR. ' 

The principle to be considered in this section may 
be thus illustrated. Capital is useless, that is, will 
yield no revenue, unless it be united with labor. A 
farm will yield nothing, unless it be tilled, and the 
grain be harvested ; raw cotton and a manufactory 
will produce nothing, unless there be workmen to 
labor in it. Hence, every man who holds capital, is 
desirous of uniting it with industry, that he may 
share, with the laborers, the profits of the resulting 
product. On the contrary, he who has industry, is 
desirous of uniting it with capital, because, unless 
he can so unite it, it will yield nothing in return. A 
man can earn nothing by spending his whole time 
in beating the air. Hence, when the number of la- 
borers is great ; that is, where labor is abundant, 
and the amount of capital small, there will be a 
competition of laborers for work, and the price of 
labor will fall ; that is, the laborer will receive a less 
compensation for his work. On the contrary, when 



130 RATIO OF CAPITAL TO LABOR. 

the number of laborers is small, and the amount of 
capital great, there will be competition among capi- 
talists for labor ; that is, the price of labor will rise ; 
and the laborer will receive a greater compensation for 
his work. Thus, we see, the greater the amount of 
capital, in proportion to the number of laborers, the 
greater will be the rate of wages, and, of course, the 
stronger the stimulus to industry. 

It deserves, however, to be remarked, that this 
principle is liable to some important modifications. 
Thus, it is practically true, only in so far as men 
continue to be operated upon by the hope of reward. 
When this ceases to operate, and wages are so low 
as to render the utmost amount of labor necessary to 
avoid starvation, men will work more assiduously, 
the lower the wages ; that is, the nearer they are to 
actual starvation. But, to this, there is also a limit. 
Human beings cannot long endure great toil, un- 
der the depressing influences of despair. Many very 
soon die, and thus a diminished population again 
raises the price of labor. Another common result of 
such a condition of laborers, is domestic insurrection. 
Men who have long stood on the borders of starva- 
tion, become desperate. They know, that by no 
change could their condition be made worse ; hence 
cupidi rerum novarum, they unite under any agitator 
who promises them bread ; the whole fabric of socie- 
ty is prostrated ; and civil war and anarchy succeed. 

Another modification of this principle, is the fol- 
lowing : I have said above, that the stimulus to la- 
bor is in proportion to the wages of labor. This 
will be true, only of those cases where the facilities 
of gratifying desire are equal. Although wages be 
high, yet if only few objects of desire can be procur- 
ed in exchange for them, there will be wanting one 
important element in stimulating the human being to 
labor. Hence, the stimulus to labor will be the most 
effective, when the wages are highest, and when, by 
means of wages, the greatest number of desires can 
be gratified. 



RATIO OF CAPITAL TO LABOR. 131 

Thus, in a newly settled country of great fertility, 
wages are high, because a vast amount of land is 
open to cultivation, and a proprietor can afford to 
give a high price for labor. Still, industry is not 
active in proportion to the rate of wages, because, 
the desires which can be gratified in a new country 
are few, and a man can procure all that is attainable 
with a less amount of labor than he is able to exert. 
Hence, the reason why men labor so intensely in pros- 
perous seasons, in large cities. The remuneration 
at such times is high, and the desires which wealth 
can gratify are innumerable. A merchant in New 
York, during the season of business, when profits 
are high, will cheerfully impose upon himself, labor, 
which he knows will, in all probability, ruin his 
constitution ; labor, which, he would not, on any 
account, impose upon a slave. 

Hence, we see that the accumulation of capital is 
more for the advantage of the laborer than of the 
capitalist. The greater the ratio of capital to labor, 
the greater will be the share of the product that falls 
to the laborer. The greater the ratio of labor to ca- 
pital, the greater will be the share of the product 
that falls to the capitalist. Hence, the laboring 
classes are really more interested in the increase of 
the capital of a country, than the wealthy classes. 
Hence, when one class of the community repine at 
the prosperity of another class, they repine at their 
own mercies, and the means of increasing their own 
rate of compensation. 

It is, however, evident, that the accumulation of 
capital, in any nation, does not depend simply upon 
its annual production, but upon the proportion that 
its annual production bears to its annual expendi- 
ture. A country that annually expends all its pro- 
duction, let it produce ever so much, will never in- 
crease its capital. A country that produces ever so 
little, if it annually expend somewhat less than its 
revenue, will be accumulating something ; and must, 
in progress of time, become richer than its more 



132 INTELLECTUAL IMPROVEMENT. 

highly favored neighbor. This explains the fact, 
that the countries blessed with the richest soils, and 
the greatest natural advantages, have not generally 
become the richest. The result has, within mode- 
rate limits, been almost the reverse. 

Hence, we see, that every mode of unnecessary 
expenditure, whether individual or national, by di- 
minishing the annual accumulation of capital, tends 
directly to lower the rate of wages, and thus injure 
the condition of the laboring classes. The millions 
which are wasted and destroyed by intemperance, if 
saved, would add to the capital of a country, and 
thus increase the demand for labor. All unnecessa- 
ry expenditure, for the maintenance of civil govern- 
ment, has, of course, the same tendency. Hence 
arises, also, one of the most afflicting consequences of 
war. Had the almost incalculable sums which 
Great Britain has expended in wars, for the last 
hundred years, been added to her operative capital, 
and, but for these wars, it would have been so added, 
all her inhabitants would have found, at all times, 
abundant employment, and, at a rate of wages, 
which would, by this time, have banished almost 
the recollection of poverty from her shores. 



SECTION V. 

INDUSTRY WILL BE APPLIED TO CAPITAL, IN PROPOR- 
TION TO THE INTELLECTUAL IMPROVEMENT OF 
A PEOPLE. 

Intellectual cultivation tends to increase the in- 
dustry of a people, in two ways. 1st. By exciting a 
people to exertion ; and, 2d. By directing that exer- 
tion. 

1. Intellectual cultivation excites a people to exer- 
tion. Ignorant men are indolent, because they know 



INTELLECTUAL IMPROVEMENT. 133 

neither the results that may be accomplished, nor the 
benefits that may be secured, by industry. This is 
one of the most common causes of the great indo- 
lence of savage nations. An Indian, who knows of 
no condition better than his own, of no covering bet- 
ter than a skin, of no habitation better than his wig- 
wam, and of no weapon better than his bow and 
arrow, has no motive to industry, beyond' what may 
be adequate to procure these simple necessaries. Let 
him know that, by additional effort, he can provide 
himself with a blanket, and, by a still additional 
effort, that he can exchange his bow and arrow for 
a rifle, and his wigwam for a comfortable house, 
and you present motives to additional labor. His 
industry will thus expand with the occasion. The 
case is the same with a nation, at a more advanced 
period of its history. Hence, the impulse which is 
always given to industry, by any important im- 
provement in the intellectual character of a people. 
It was a knowledge of the conveniences and luxu- 
ries of the East, which the crusaders brought back 
to western Europe, that was the precursor and the 
cause of that dawning of improvement which suc- 
ceeded the night of the dark ages. 

2. Intellectual cultivation directs to a 'profitable end T 
the industry which it has previously excited. 

Agriculture will be successfully prosecuted, only 
. in proportion as men are acquainted with the best 
modes and seasons of culture, the laws of vegetable 
and animal physiology, and the probable existence 
of that demand which it will be most profitable to 
supply. 

Manufacturing labor will be successful ill pro- 
portion as the manufacturer is able, by his know- 
ledge, to avail himself of the improvements of other 
countries, to understand the laws of nature, and in- 
vent means of applying them to his own advantage, 
and as he is able, by his intelligence, to modify his 
occupation in any manner that may be for his in- 
terest. 

12 



134 INTELLECTUAL IMPROVEMENT. 

The Merchant will be successful in proportion as 
he is able to select the most profitable places and 
times for exchange, to foresee the probable alterations 
of the market, and to avail himself of the fluctua- 
tions of capital which are always taking place, in 
various parts of the civilized world. 

And, in general, it is evident that, with a given 
amount of labor and of capital, production will be ex- 
actly in proportion to the knowledge which the ope- 
rator has of the laws which govern that department 
in which he labors, and to the degree in which his 
labor conforms to his knowledge. If, then, labor 
will be in proportion to the benefits which it confers ; 
and if, by knowledge, these benefits are increased, 
we see in what manner labor must be stimulated by 
intellectual cultivation. Thus we see how it is, that 
an intelligent people is always industrious, and an 
ignorant people always indolent. Hence, one of the 
surest means of banishing indolence, is to banish ig- 
norance from a country. 

But, it is evident, that improvement in knowledge, 
in order to be in any signal degree beneficial, must 
be universal. A single individual can derive but 
little advantage from his knowledge and industry, 
if he be surrounded by a community both ignorant 
and indolent. In just so far as they improve their 
condition, and become useful to themselves, they be- 
come useful to him ; and both parties thus become 
useful to each other. This is specially the case, 
where a government is, in its character, popular ; 
that is, where laws emanate from the more numer- 
ous classes. In such a case, not only is an intelli- 
gent man not benefitted, but he is positively injured, 
by the ignorance and indolence of his neighbors. 
Hence, the reason why every man has a personal 
interest in the intellectual improvement of every one 
of his fellow citizens ; and why the education of the 
whole population should be the care of the govern- 
ment ; that is, of the whole country. 

The efforts of a government may be usefully di- 



INTELLECTUAL IMPROVEMENT. 135 

rected, in this respect, to two objects. 1st. The in- 
crease ; and 2d. The dissemination of knowledge. 

First. The increase of knoivledge. This may be 
promoted in several ways. 

1. By the establishment of colleges, universities, 
and other seminaries of learning. These, I suppose, 
should be furnished by the public, with libraries, 
apparatus, and all the means for instruction, investi- 
gation and discovery. They should be so governed, 
and the remuneration so adjusted, that teachers 
should be placed under the strongest stimulus to 
labor for the promotion of science, and to communi- 
cate, most successfully, knowledge to their pupils. 
Colleges and universities should, at all times, be 
places of strenuous effort, and vigorous mental dis- 
cipline, on the part of both instructors and pupils. 
As soon as they become the places of literary leisure, 
and intellectual indolence, they are not only useless, 
but hurtful ; inasmuch as they retard, rather than 
advance, the progress of science. 

For this reason, I doubt whether endowments, for 
the support of professorships, are useful ; at least, 
whenever they render a teacher's support, indepen- 
dent of his own exertions. For the same reason, a 
teacher should not be remunerated by a fixed sala- 
ry, but by the sale of tickets of admission to his lec- 
tures, or by a salary, varying with his ability and 
success. Large foundations for the support of stu- 
dents in colleges, if under the control of the college 
itself, so far as they render the number of students 
in no way dependent upon the ability and faithful- 
ness of -the instructor, will have a tendency to re- 
move from him one of the most valuable stimulants 
to industry. 

2. By rewarding those who have been successful 
in the advancement of science. 

1. This may be done, first, Directly, as by be- 
stowing premiums, rewards, grants of money, &c, 
to those who have made discoveries of pre-eminent 
utility. This is frequently done by the British go- 



136 INTELLECTUAL IMPROVEMENT. 

vernment ; and, for aught I see, it is done wisely. In 
this country, however, it is, I believe, never practic- 
ed. The only rewards which we ever confer, are for 
military or naval service. The propriety of those, I 
by no means, in this place, dispute : yet, I think it 
would be difficult to show, that warriors are the 
only benefactors of mankind, or that Whitney or i 
Fulton did not deserve as well of their country, for 
the invention of the cotton gin and the application 
of steam to navigation, as they would have done, 
had they captured a fleet on the ocean, or routed a 
tribe of Indians in the forest. 

2. Indirectly, by granting to those who labor in 
science or invention, the right to derive advantage 
from their discoveries or inventions. This is done 
by laws of copy and patent right. The justice of 
this provision we have elsewhere shown. We here 
see the manner, in which, by stimulating intellectu- 
al labor, by hope of reward, it tends to increase 
knowledge, and hence, facilitate production. 

Secondly. A government may improve the intel- 
lectual character of a people, by the 'dissemination of 
knowledge. This will be done, so far as provision 
is made for the universal instruction of a people in 
the elements of a common education. The interest 
of every man demands that all his fellow citizens 
should be able to read and write, to keep accounts, 
to understand geography, and thus possess the 
means of self-improvement, to whatever degree they 
may be disposed to carry it. 

The effect of such a diffusion of knowledge, has 
already been illustrated at sufficient length. It will 
be necessary here only to allude to the means, by 
which this result may be best attained. 

1. As a stimulus to intellectual improvement, 
probably, the right of suffrage should be restricted to 
those who are able to read and write. 

2. Provision should be made, in every neighbor- 
hood, for the education of all children under a cer- 
tain age. 



BENEFITS OF RELIGION. 137 

3. The expenses of this provision may be borne, 
partly, by a general fund. This fund should, how- 
ever, never defray more than a portion of the ex- 
pense ; for no man values, highl y, what he gets for 
nothing. If a fund be raised for this purpose, great 
care must be taken that it be not abused. 

4. Without a fund, the same result will probably 
be better accomplished by obliging every district, 
containing a given number of inhabitants, to provide 
itself with a school, on penalty of a fine to be paid 
to the school districts in its neighborhood, for the 
purposes of instruction. 

5. To complete this arrangement, it might, proba- 
bly, be desirable that seminaries be provided for 
the purpose of educating teachers for the primary 
schools. This would ensure a supply of instructors, 
of assured qualifications, without which, such a sys- 
tem could not go into successful operation. 

And now, to sum up what has been said : It will 
be seen that the inducements to labor, and, hence, 
of course, the wealth and means of happiness, in 
any given country, must depend, principally, upon 
two conditions : 1st. The degree of its intelligence ; 
and, 2d. The purity of its moral character. 

1. On its intelligence will depend its knowledge of 
its own advantages, of the laws of nature, and of 
the means by which it may avail itself of those laws, 
for the promotion of its own happiness. A nation 
without knowledge, like a blind man in the garden 
of Eden, might be surrounded with every thing 
lovely to the eye or delightful to the taste, without 
ever being able to ascertain, either where a single 
object of desire was to be found, or how the posses- 
sion of it might be secured. 

2. On the moral character of a nation depends the 
justice of its laws, its respect for individual right, 
security of property, individual and social virtue, 
together with the industry and frugality which are 
their invariable attendants. 

Of these two, the latter is the more important to 
12* 



138 BENEFITS OF RELIGION. 

national prosperity. For, where virtue, frugality, 
and respect for right exist, riches will, by natural 
consequence, accumulate ; and intellectual cultiva- 
tion will, of necessity, succeed. But, intellectual 
cultivation may easily exist, without the existence 
of virtue or love of right. In this case, its only ef- 
fect is, to stimulate desire, and this, unrestrained 
by the love of right, must eventually overturn the 
social fabric which it at first erected. Hence, the 
surest means of promoting the welfare of a country 
is, to cultivate its intellectual, but especially its 
moral character. Until this have been done, no per- 
manent foundation for a nation's prosperity has yet 
been laid. And, if any one will take the pains to 
examine, he will find, that, other things being equal, 
the wealth, and happiness, and power of every na- 
tion, are in exact proportion to its intellectual and 
moral character. 

And, here, it may not be amiss to add, that all 
true benevolence may be defended, no less upon 
principles of political economy, than of philanthropy. 
The circulation of the scriptures, the inculcation of 
moral and religious truth, upon the minds of men, by 
means of Sabbath schools, and the preaching of the 
gospel, are of the very greatest importance to the 
productive energies of a country. The argument is 
very short, but it seems very conclusive. No nation 
can rapidly accumulate or long enjoy the means of 
happiness, except as it is pervaded by the love of 
individual and social right ; but the love of indivi- 
dual and social right will never prevail, without the 
practical influence of the motives and sanctions of 
religion ; and these motives and sanctions will never 
influence men, unless they are, by human effort, 
brought to bear upon the conscience.' 

The same principles will defend, upon economical 
grounds, the efforts of benevolence on behalf of 
foreign nations. Intelligence, virtue, and equitable 
laws, will have the same effect upon other men, that 
they have upon us. They will render men indus- 



BENEFITS OF RELIGION. 139 

trious, frugal, and consequently rich, and raise them 
from a savage to a civilized state. Just in propor- 
tion as a nation is thus transformed, are its products 
increased ; the riches of the whole world are aug- 
mented ; the portion of wealth, which falls to the 
share of each man, is rendered greater ; and the 
ratio of capital to lahor is higher. Just as a nation 
becomes intelligent and rich, its wants are multi- 
plied, and the means for supplying them are provid- 
ed. Hence, it becomes a better customer to other 
nations ; it gives an additional impulse to their in- 
dustry ; and it repays them for their products, with 
whatever God has bestowed upon it, which will add 
to the happiness of others. Can any one doubt that 
Great Britain and France reap incomparably greater 
advantages from each other, in their present condi- 
tion of advanced civilization, than either of them 
would, if the other were in the condition in which it 
was found by Julius Csesar ? What demand would 
Great Britain make upon the productions of France, 
if she were, at this moment, inhabited by half-naked 
savages ? Or again : How much greater benefits does- 
North America confer upon the world, than it would 
if it were peopled by its aboriginal inhabitants 1 How 
great a stimulus would be given to the industry of 
the world, at this time ; and how greatly would the 
comforts and luxuries of men be increased, if Africa 
were peopled by civilized and christianized men 1 
Now, if these things be so ; and that they are so, I 
see not that any one can dispute ; it seems to me, 
that civilized nations could in no way so successfully 
promote their own interests, as by the universal dis- 
semination of the means of education and the princi- 
ples of religion. 



140 PROTECTING DUTIES. 



SECTION YL 

ON THE EFFECTS OF DIRECT LEGISLATION; AS A MEANS 
OF INCREASING PRODUCTION. 

I have thus far said nothing upon the effect of 
legislative enactments, by means of bounties and 
protecting duties, as a means of increasing produc- 
tion. The reason is, that I have not yet been able 
to discover in what manner they produce this effect. 
Nevertheless, since many persons suppose them to 
be of great importance, it might seem that a discus- 
sion of this subject was incomplete, if they were 
passed over in silence. I shall devote this section to 
a consideration of their effects. 

1. Duties of this sort are to be considered apart 
from those levied for the support of government, be- 
cause they are either not necessary for this purpose, 
or else they are levied for a different object. Thus, 
if five per cent, on an import be necessary to the 
support of government, and ten per cent, be levied, 
in order to favor, or, as it is said, to protect one 
branch of industry, the additional five per cent, is 
levied for a distinct object, aside from that of the 
support of government. It is only this latter part of 
the duty which we propose to consider ; that is, so 
much of the duty as is levied for the purpose of 
favoring one particular product. 

2. Now, if such a duty have any effect upon the 
productiveness of a nation, it must be in one of 
these ways. It must either first increase the capital 
of a country ; or, secondly, increase its number of 
laborers ; or, third, create a greater stimulus to labor. 
I think it evident, from what has already been 
shown, that every condition which affects produc- 
tion, must exert its influence in one of these three 
methods. 

3. I think it evident, that legislation of this sort 



PROTECTING DUTIES. 141 

cannot increase the capital of a country. The capi- 
tal of a country", at any moment, is its present 
amount of annual and fixed capital. Now, a law 
cannot create capital ; since, if it could, there would 
be no necessity for any other labor than that of le- 
gislation ; and, in order to grow rich, a nation would 
have nothing to do but meet in public assembly, and 
spend its whole time in making and hearing speech- 
es, and enacting laws. I believe, however, that this 
mode of growing rich, has never been found remark- 
ably successful. 

If it be said that, in this manner, we shall attract 
foreign capital to our own country, I answer : this 
depends not upon legislation, but upon the rate of 
interest, and the security of property. If these con- 
ditions be more favorable here than in another coun- 
try, capital will flow hither. If they be more favor- 
able in another country than here, it will flow thither. 
The system of Great Britain has been exclusive, but 
capital does not go from this country to be invested 
there. 

4. Legislation of this kind cannot increase the 
actual number of laborers. The number of laborers 
is as the number of inhabitants. Legislation has 
never been supposed to have any power to create 
men. It is true, population is found always to in- 
crease with the increase of the means of living ; that 
is, with the increase of the productiveness of labor. 
Population will increase or diminish, just in propor- 
tion as a laborer is able to procure greater or less 
wages for a day's labor; that is, as every thing is 
cheaper or dearer. Whether the tendency of duties 
is to render productions cheap, remains to be consi- 
dered. It must, however, be evident to all, that 
laws do not create human beings ; of course, they 
add nothing to the number of laborers, that is, of 
human beings in a country. 

It may be said, we may thus induce laborers to come 
from other countries. To this it may be answered ; 
this will depend upon the wages of labor. If labor- 



142 PROTECTING DUTIES. 

ers be better paid here than elsewhere, they will 
come here, and not otherwise. Besides, what is 
called protection changes only the mode of labor ; 
that is, it takes men from one mode of labor, to em- 
ploy them upon another. Suppose, then, that it 
attracts foreign laborers to one branch of industry ; it 
deters those in another branch of industry from im- 
migrating. If, for instance, manufacturers are pro- 
tected, this will tend to encourage manufacturers to 
immigrate ; but it will, in a correspondent propor- 
tion, discourage agriculturists. 

5. If, then, discriminating duties produce any 
effect upon production, it must be by stimulating in- 
dustry ; that is, while the amount of capital and the 
number of laborers remain the same, by stimulating 
men to labor more industriously, and thus to create 
a greater amount of production than they would 
under other circumstances. This, I believe, is sup- 
posed to be the way in which the system produces 
its effect. This is the point of view in which we 
shall now proceed to consider it. 

The manner in which this is done is the follow- 
ing : Suppose a country to be under a free sys- 
tem, and that every one is devoting himself to ag- 
riculture, commerce, or manufactures, as he finds 
it the most for his interest; under these circum- 
stances, there will be a certain average of produc- 
tiveness, both of labor and of capital. Woollen 
cloth can be procured, by exchange, for five dol- 
lars a yard ; but it cannot, in the present state of 
the country, be manufactured for less than ten dol- 
lars a yard; that is, capital and labor are, in every 
thing else, so productive, that they could not be ab- 
stracted from other employments at the same rate of 
profit, unless the manufacturer could receive ten 
dollars a yard for his cloth. Now suppose, that, in 
order to enable him to do this, a duty of five dollars 
a yard is levied on imported cloth, by which the 
price of all cloth is raised to ten dollars a yard, that 
it may be in the power of the manufacturer, to em- 



PROTECTING DUTIES. 143 

ploy his capital and labor in this manner. There is 
no doubt that thus the manufacture of cloth might 
be established. 

Now I think it evident, upon inspection, that the 
productiveness of labor is not, by this operation, in- 
creased. The reason why cloth was not manufac- 
tured before, was, that the productiveness of labor 
and capital, in this mode of investment, was lower 
than the average productiveness of labor and capital 
in other modes of investment. All that has been ef- 
fected is, to raise the productiveness here to the gene- 
ral average elsewhere. There has been nothing done 
to render it any greater, either in this or in any other 
employment ; for I presume that no one will contend, 
that one kind of industry should be really more high- 
ly paid than another ; nor that, if it were desired, it 
could be effected without the aid of a direct mono- 
poly. 

But the manufacturer now gets ten dollars for 
that which before would bring only five. Let us 
inquire whence this additional five dollars comes. 

It is evident that government possesses nothing. 
All that it possesses is precisely so much taken from 
the annual revenue of individuals. In this case, 
therefore, it really bestows nothing, but only causes 
a transfer of annual revenues, from one party to an- 
other. The case is, therefore, the same as it would 
be if, while there had been no duty imposed, every 
man had been allowed to buy cloth for five dollars 
a yard, but had been- obliged, for every yard that he 
bought, to pay five dollars to the manufacturer. It 
would be the same thing to both parties as at pre- 
sent. The consumer would then, as now, pay ten 
dollars a yard for cloth, and the manufacturer might 
sell it for five, if he received five more as a gratuity. 
The five dollars that have been added to the revenue 
of the one, are precisely five dollars taken from the 
revenue of the other. 

Now if this be the fact, inasmuch as what is added 
to the productiveness of the industry of the one class, 



144 PROTECTING DUTIES. 

is taken from the productiveness of the industry of 
the other class, it would seem that what the one 
has gained, the other has lost ; and hence, that there 
can be no increased stimulus to industry on the 
whole, since, by as much as the one is stimulated, 
the other is depressed. But this is not all. What 
you have given to the one class* has only raised his 
mode of labor to the point of productiveness at which 
that of all the other classes existed before ; while 
the means by which this has been effected, has, to 
the whole amount of its effect, reduced the produc- 
tiveness of all the other classes lower than it was 
before. By just as much as this productiveness has 
been diminished, by so much has the stimulus to 
industry been, upon the whole, decreased. 

But secondly ; As the price of the article is in- 
creased, the demand for the article is diminished. 
This has been before illustrated. There will, there- 
fore, be less of the article produced, because less of 
it is wanted. By all this diminution is the demand 
for labor diminished - the price of labor must, there- 
fore, fall, and the stimulus to labor he, by so much, 
decreased. 

This effect will take place, in what manner soever 
the discriminating duty may operate. Suppose, that 
from scarcity of wool, the price of imported cloth 
had, without any duty, been doubled ? The result 
would have been, that the demand would so have 
fallen off, that multitudes Avould have been thrown 
out of employment, and whole establishments would 
have been ruined. Suppose that, by a duty, we 
exclude the foreign cloth, and make it ourselves, but 
at double the price. There will be a less quantity 
made, than before. But the imported cloth was not 
to be had for nothing. Some of our own population 
were obliged to raise the products which we sent in 
exchange for it. As we do not take their cloth, they 
cannot take our produce. Of course, all those who 
labored in the products which were exchanged for 
cloth, are out of employment. There was a demand 



PROTECTING DUTIES, 145 

for a sufficient amount of their labor to purchase one 
thousand bales of cloth ; suppose, now, there is a 
demand for labor sufficient to make only five hun- 
dred bales of cloth. By all the difference, therefore, 
between the labor necessary to procure one thousand 
bales by exchange^ and that necessary to manufac- 
ture, or procure by exchange, five hundred bales, is 
the demand for industry diminished, and, of course, 
the stimulus to industry weakened. 

We see, then, what is the tendency of a system of 
this kind. First, so far as the manufacturer is con- 
cerned, it cannot increase his profit beyond the 
average profits of every other employment ; for, if 
competition be allowed, capital and. labor will flow 
into it, whatever may be its advantages, until its 
profits fall to the general level. Secondly, the de- 
mand for other labor is diminished, by the reduced 
consumption created by a rise of price, and also, as 
this rise of price increases the expenses of living, it 
makes even these reduced wages of less value than 
they were before. Hence the tendency is, to reduce 
the profit of capital and of labor in the whole com- 
munity lower than they were before such duty was 
imposed. To this reduced average, manufactures 
must themselves conform ; and hence, by this very 
operation, they themselves must suffer. Hence we 
see the reason why, when once a duty is imposed 
for the protection of a particular branch of manufac- 
tures, it is not long before a larger protective duty is 
demanded ; and also why a protective duty, which 
at first is followed by great manufacturing enterprise 
and success, is so commonly afterwards followed by 
so universal a depression of manufacturing industry. 

This is the result so far as the effect upon our own 
country is concerned. But this is not all. A rise of 
prices must, of necessity, follow a protecting duty ; 
for this is its very object. Its object is, to raise the 
price of some particular product, so that it may be 
created where it could not be created before. If it 
produce no rise of prices it is useless. Now, a rise 
13 



146 PROTECTING DUTIES. 

of prices raises the cost of production, and, by its 
whole effect, must raise the price of every product 
which we create. By this whole effect, there- 
fore, is our foreign market injured. If we can 
raise cotton at ten cents a pound, and bring it into 
market as cheap as other nations, we have as good 
an opportunity as they, for selling it. If we can 
raise it at nine cents, we can undersell them, and 
supply the whole market ; or, if we sell it at the 
same price as before, we gain one cent more on the 
pound. If, by increase of the expenses of living, 
we cannot raise it for less than eleven cents a pound, 
they will undersell us, and we shall be obliged to 
give up the raising of cotton, either partially or alto- 
gether ; and the industry engaged in raising and 
transporting the cotton, and what we receive in ex- 
change for it, must be either partially or wholly 
thrown out of employment. Every one must see, 
that the manufactures of England could be afforded 
much lower : that is, would be able much better to 
compete with those of other nations, if, by abolishing 
her duties on corn, her manufacturers could be sup- 
plied with the necessaries of life at half the present 
cost. At the same profit to the laborer and capital- 
ist, her products could be afforded at a price less 
than at present, by the whole amount of the differ- 
ence in the expenses of living. By this difference, 
she would both undersell other nations and increase 
the demand for her manufactures, thus reaping, at 
once, a double advantage. 

But once more : It is seen that, by such a system, 
the course of industry and of capital in a nation, 
must be greatly changed. Thus, when an article is 
imported, one class of producers must labor to create 
the article which we exchange for it ; another class 
must build ships to transport it ; and another class 
must carry on the transportation. By a discrimi- 
nating duty, all these classes must, either in whole 
or in part, be thrown out of employment, and this 
capital be cither reduced in value, or rendered wholly 



BOUNTIES. 147 

useless. Now this is a serious injury, both to the 
capitalist and the laborer. The property of the one 
and the skill of the other are rendered useless, and 
by so much is it a total loss to the country. It may 
be said, let them seek other employments. True ; 
they must do this, or starve ; but this renders it not 
the less true, that there has been so much loss. If a 
man's house be burned down, it is easy to say to 
him, move into another house ; but this does not 
alter the fact, that his house has been burned down, 
and that he has suffered loss to precisely this amount. 

But, suppose we turn to the other employment. 
It has been shown that the average of profit, in this 
employment, cannot be higher than the average of 
profit was, in the employment which he left. He is 
then no better off than he was before, and, in the 
meantime, he has lost the skill and capital which he 
spent many years to acquire. By all this amount 
of depreciation, therefore, is he, and of course, the 
whole country, poorer by the exchange. 

Of Bounties. The principle of bounties is the 
same as that of discriminating duties. The manner 
in which they are bestowed, is the following : If a 
manufacturer cannot produce cloth for less than ten 
dollars a yard, and the imported cloth can be pro- 
duced at five dollars, a bounty of five dollars a yard 
is given him, for every yard he manufactures, or for 
every yard he exports. The cloth, then, is sold, 
either at home or abroad, at five dollars, and he also 
receives five dollars as a gratuity. 

The principal reasons urged above, apply to boun- 
ties. They are, however, less objectionable, for se- 
veral reasons : 

1. The price of the article is not visibly raised, 
and the consumption, therefore, on this account, is 
not so much diminished. 

2. The encouragement given, in this manner, is 
cheaper ; that is, we pay only for what is made, 
while, by discriminating duties, we pay the same. 



148 BOUNTIES. 

whether any thing is made or not. We pay a very 
heavy duty on cutlery in this country, while not a 
thousandth part of the cutlery used, is made here. 
It would be vastly cheaper to pay a bounty suffi- 
cient to raise all the cutlery made in this country to 
its present prices, and it would be, for aught I see, 
just as good for the cutler. The whole effect of this 
mode of encouragement is, to pay one man as much 
more as the bounty amounts to, for producing an 
article, than we should pay another man ; that is, 
one man will do it for five dollars, and we engage 
another to do it for five dollars, and give him five 
dollars besides, for the sake of economy. 

I have, thus far, considered this subject solely in 
respect to its connection with economy ; that is, as 
it is favorable or unfavorable to production. It is, 
however, obvious, that an entirely distinct argu- 
ment might be constructed on another, that is, a 
moral ground. It might be asked, by what right 
does society thus interfere with the property of the 
individual ? when did the individual surrender this 
right 1 and how wise would it be for him to surren- 
der it '? It is in vain here to urge, that society has the 
right to destroy individual property, in cases of ex- 
treme necessity ; because, in order to render this 
plea available, it must be shown that this is a case 
of extreme necessity. And besides, if society de- 
stroy individual property in case of extreme necessi- 
ty, it is always bound to make good the loss to the 
individual. I think that, if the protected interests 
were obliged to make good the loss which the system 
inflicts upon all other interests, the demand for pro- 
tection would be less urgent than at present, ; and 
protection would be considerably less injurious. 

But, as these are questions of right, and belong 
rather to Moral Philosophy than to Political Econo- 
my, we shall not, in this place, discuss them any 
further. 

But, in opposition to what has been offered, seve- 



OBJECTIONS CONSIDERED. 149 

ral objections have been urged. It may be proper 
to notice here, some of those which are most com- 
monly advanced. 

I. The above argument is made to turn upon pro- 
duction alone, and proceeds upon the supposition, 
that the prosperity of a nation depends upon the 
productiveness of its industry, more than upon 
any thing else. In order to meet this view of 
the case, it has been said, that production is a mat- 
ter of no consequence to a nation's prosperity, and 
that, in order to make a nation rich, happy and 
powerful, all that is necessary is, to encourage and 
stimulate consimiption. 

1. To this it may be answered, that this assertion 
leaves the above argument untouched, so far as pro- 
duction is concerned ; that is, it does not deny that 
the effects of discriminating duties upon pr duction, 
are such as we have shown. 

2. But secondly : If a man asserts that the wealth 
of a nation is the result of its consumption, and not 
of its production, he must also assert that the hand 
of the prodigal, and not that of the diligent, maketh 
rich ; that industry and frugality are the sources, 
not of wealth, but of poverty ; that fire and sword, 
devastation and murder, are national blessings ; that 
we ought to pay other nations, instead of their pay- 
ing us, for spoliations of property ; that incendiaries 
should be rewarded, instead of being hanged ; and 
that the way to render a city rich, happy, and pros- 
perous, is to reduce it to ashes. If a man really 
believe this ; I do not say if he assert it ; his case is 
beyond the reach of ratiocination ; and he must 
be recommended to the attentions of a medical ad^ 
viser. 

II. It has also been urged, that the only method 
of rendering products cheap, is to encourage compe- 
tition ; that competition is the great source of in- 
creased productiveness of labor, and that to excite 
competition among our own manufacturers, by means 
of higher duties, is the only sure method by which to 
13* 



150 OBJECTIONS CONSIDERED. 

cause any article of necessity to be produced at the 
lowest possible rate. 

To this objection we reply, that the principle as- 
sumed is erroneous ; and that the reasoning in sup- 
port of it is self -destructive. 

1. The principle assumed is erroneous. Although 
free competition is necessary, to reduce prices to 
their natural rale; yet beyond this, competition, 
within long periods, can have no effect whatever. 
The price of every article is determined by the cost 
of its production ; that is, by the labor and capital 
necessary to produce it. Its price can be reduced in 
no other manner than by reducing this cost. If the 
materials can be furnished cheaper, and it can be 
produced by less labor, its price will fall ; but it can 
fall from no other cause. If it be a monopolized 
article, the producer may, over and above a fair 
remuneration for his expenses, demand an excessive 
profit. If there be a free competition, his profits 
will be reduced to the general average of other capi- 
tal and labor. A competition which obliged a pro- 
ducer to sell for less than cost, would, of course, 
ruin him, and would be a loss to the community. 
Such is the case in times of manufacturing depression, 
when the producer is obliged to sell at a loss. These 
are surely not times of prosperity. The result of 
such competition is, to drive a portion of the pro- 
ducers out of employment ; a less amount of the 
product is created, competition is diminished, prices 
rise to their natural level, and the whole effect of 
competition is at an end. If, then, when there is no 
monopoly, competition, be it ever so great, can re- 
duce the price of no article permanently below the 
cost of its production ; and that, by this cost, its 
price will always be determined, be the competition 
whatever it may ; it is evident, that the only way in 
which the price of any thing can be really reduced, 
must be by diminishing the price of the material 
and labor employed in creating it ; that is, by ren- 
dering every thing as cheap as possible. And it is 



OBJECTIONS CONSIDERED. 151 

also evident, that by raising the price of articles of 
consumption ; that is, of the articles of living, we 
shall raise the price of whatever is produced, let the 
competition be ever so great. 

But, secondly r , the argument drawn from the as- 
sertion is self-destructive. If it be the fact that com- 
petition is the great and proper cause of reduction of 
price, then, the wider the competition, the greater 
will be the reduction of price. If this be so, we 
should not only open our ports to every other nation, 
but should abolish import duties altogether, even for 
the sake of raising a revenue, and sustain the ex- 
penses of civil government, altogether by direct 
taxation. It would, however, be a new mode of 
encouraging competition, if the citizens of New York 
should forbid every one, not a native of that city, 
to exercise the trade of a carpenter or joiner, within 
the limits of their jurisdiction. In what manner 
such an act would reduce the prices of house-build- 
ing, I confess myself unable to discover. 

I think, therefore, that the system of discriminat- 
ing duties cannot be defended on the ground that 
they, by competition, tend to reduce prices. 

III. Again : It is asked, is it not better to labor 
for ourselves, than to have others labor for us ? 

I answer, undoubtedly. We must labor for our- 
selves, unless we mean to live either by begging or 
by stealing. And this is really the only alternative 
which the Creator has left us. On this point, there- 
fore, there is no dispute. It is agreed, on both hands, 
that it is better to labor for ourselves, than to have 
others to labor for us. 

Whatever either a man or a nation possesses, ex- 
cept by robbery or begging, must be the production 
of its own labor. The question then, is, whether it 
is better for us to receive a greater, or to receive a 
less result from our labor. Every man must labor 
for a coat. But is it better for him to procure it by 
labor, for five dollars a yard, or for ten dollars 1 Is 
it better that he should, by exchange, earn it by five 



152 OBJECTIONS CONSIDERED. 

days' labor, or make it for himself, by fifteen days 1 
labor 1 He procures it as much by labor in the one 
case, as in the other. I do not see that there can be 
any question, in which way his labor can be most 
profitably expended. If a manufacturer wish for 
oranges, he can procure them in no other way than 
by labor. The question is, whether he shall pro- 
cure them by labor in manufactures, or by labor in 
raising them. In the first case, a day's labor will 
produce, by exchange, a hundred oranges ; in the 
second case, it will cost several days' labor to pro- 
duce one. The question is, in which way, by labor, 
can a manufacturer, most easily, supply himself with 
oranges 1 

IV. But it is said, although we may be obliged, at 
first, to procure manufactures at a higher price, yet, 
having once introduced them, they will, in the end, 
become cheaper than before ; and thus, our ultimate 
benefit will more than repay our temporary loss. 

In order to consider this objection, it will be ne- 
cessary to refer to what we have already remarked 
on the nature of annual and fixed capital. 

It is evident, that, in the first stage of any society, 
there exists nothing but the earth with its capabili- 
ties, and man to labor upon it. The labor of man 
produces an annual capital. If he have been indus- 
trious and frugal, there will have arisen an annual 
surplus, which must, of necessity, be transformed 
into fixed capital ; and it is so transformed, for the 
purpose of increasing the annual capital. Thus, 
every addition to the fixed capital for this year, lays 
the foundation for the investment of a larger amount 
in fixed capital for the next year ; and thus nations 
grow rich, and the demand for fixed capital is annu- 
ally increasing. 

It is evident that the investment in fixed capital 
will be, first, in those instruments themselves, neces- 
sary for the direct increase of annual production, as 
ploughs, fences, houses, barns, &c. ; and, secondly, 
in the machinery necessary to the creation of these, 



OBJECTIONS CONSIDERED. 153 

and of the productions for annual consumption ; that 
is, it will be in manufacturing establishments. But, 
inasmuch as the capital of a country is at first small, 
a nation will, of necessity, at first invest its annual 
surplus in those manufactures which require the 
least capital, and of which the price is most enhanc- 
ed by transportation. As capital increased, it would 
become able to make larger investments of fixed 
capital. Manufactures, which it would have been 
impossible for it to conduct profitably in its tenth 
year, it may conduct profitably in its fiftieth year ; 
and what it could not conduct profitably in its fif- 
tieth year, it may very profitably conduct in its one 
hundredth year. And the reason of this variation is 
two-fold. In the one case, it did not, and in the 
other case it did, possess the capital necessary for 
the investment in this particular branch of manufac- 
tures ; and, in the second place, though it possessed 
the requisite capital, that capital could not be taken 
from the employments in which it was at present 
engaged, and invested in any thing else, without a 
loss, that is, a diminution of profit. As soon, how- 
ever, as the most necessary investments have been 
made, their annual product will enable the nation 
to commence something else. By the multiplica- 
tion of capital, the rate of interest is diminished, and 
a nation is gradually enabled to produce for itself 
every thing for which it has the natural facilities. 
And hence, the time when any manufacture can be 
profitably established, in a country which possesses 
natural advantages for it, is decided by the amount 
of the capital of that country ; the amount of annu- 
al investment which it is able to make in fixed capi- 
tal ; and on the rate of interest at the period in ques- 
tion. 

Now, suppose that the system of discriminating 
duties left the means of accumulation unaffected. 
In this case, the period of profitably producing the 
article in question would arrive, at the same time as 
if no such system had been adopted. Previously, 



154 OBJECTIONS CONSIDERED. 

therefore, to this time, the article must have been 
purchased by the whole community, at an addi- 
tional and unnecessary expense ; since, when this 
time arrived, in the natural course of things, the 
manufacture in question would commence, just as 
though nothing had been done, and just as every 
other manufacture had previously commenced. In 
this case, then, I see not that there would be any 
gain. All that has been paid, therefore, is so much 
unnecessary expense, without rendering this kind of 
investment profitable to the whole community, any 
sooner than it would have been, had no such expense 
been incurred. 

That, however, a discriminating duty does not in- 
crease productiveness, that is, the means of accumu- 
lation, but that, on the contrary, it diminishes it, 
has, I think, been already shown. Now, by just so 
much as it diminishes productiveness, and of course 
diminishes annual capital, by so much it postpones 
the period, at which the manufacture in question 
can be profitably established. Hence, the state of 
the case is this : In the present condition of capital 
and labor, the manufacture of a particular produce 
is unprofitable. In order to produce it now, instead 
of producing it at a later period, we diminish the pro- 
ductiveness of all other labor. And the only effect 
of this imposition which we have laid upon ourselves, 
is, instead of hastening the period of its profitable 
establishment, to postpone it to a still more distant 
period. 

But this is not all. We see that all this is done, 
and all this expenditure is incurred, without any 
certain knowledge of the result. It cannot be cer- 
tainly known when the period will arrive, at which 
the manufacture, in favor of which we have laid the 
discriminating duty may, be profitably commenced, 
or whether, indeed, it can ever be commenced at all. 
If it can never be commenced, we have thus impos- 
ed a duty by which we are all made so much the 
poorer, without the prospect of any benefit. And if 



OBJECTIONS CONSIDERED. 155 

it may profitably be established at some future time, 
but we know not when that time will arrive, we are 
paying out our money at random ; that is, we know 
not whether we shall gain or lose by the exchange. 
Supposing a benefit in fact to resultj it is worth a 
given sum, and no more ; but we have no means of 
knowing whether the sum which we pay is only 
equal to the benefit, or whether it is ten times great- 
er. Now, that it is very possible for a nation thus 
to pay for an advantage, supposing an advantage to 
be gained, vastly more than it is worth, is manifest. 

To illustrate the amount which has been frequent- 
ly expended to gain this supposed advantage, I sub- 
join the following instances from the Edinburg Re- 
view, for October, 1829 : 

" The French duties on iron, from 1814 to 1822, 
have directed much capital to the iron trade. In 
1818, 1,140,000 quintals of unwrought iron were 
produced in France; in 1825, 1,970,000; in 1829, 
2,269,000. Thus far the system has succeeded. 

On the contrary, as foreign iron is imported at a 
duty averaging twenty francs, the price of the whole 
2,269,000, above what it could have been imported 
for, is 40,538,800 francs, the direct cost for protec- 
tion. This is about £20 sterling a-piece to every 
person . engaged in the iron trade. The effect of 
these measures is, to add fifty francs to the price of 
a plough, and to render cotton machinery one third 
dearer than it would be if imported. The price of 
charcoal has been doubled or trebled, and from twen- 
ty-five to fifty per cent, has been added to the price 
of iron and wood. So great is the injury to other 
branches of production. 

And yet the iron trade is depressed. This is owing 
to the fact, that too great a portion of capital has 
been directed to the iron trade; and also to the increas- 
ed price of charcoal. It must also necessarily follow, 
from what has been said above. This pressure, 
which has been brought upon other branches of pro- 
duction, must reduce the average ratio of profit ; and 



158 OBJECTIONS CONSIDERED. 

to this average the iron trade must sink, as well as 
everything else. Here there is an injury done to 
every other branch of business, and yet the iron 
business is not at the average rate of profit ; that is, 
it is depressed. There is a great annual loss ; but 
where do we see the prospect of a subsequent 
benefit 1 

The sugar trade. To encourage her colonies, 
France lays a duty of fifty francs per quintal, on all 
foreign sugars. This has increased the quantity 
made at home and at her islands. So far it has 
succeeded; but, 

2. The difference between the duty on foreign and 
the duty on her own sugars, amounts to 32,945,000 
francs. This is the bounty paid to the sugar grow- 
ers of Martinique and at home. 

3. The quantity of sugar consumed is probably less 
by one third, than it would otherwise be. England, 
with half the number of inhabitants, consumes two 
and a half times as much sugar as France. 

4. But it is said, that, by this means, beet-root 
sugar will yet supply France at the ordinary price. 
It must, however, take twenty years, under the pre- 
sent system, in order to do this. The present pro- 
tection costs £1,400,000 per annum. Suppose this 
to continue for twenty years, it will amount to 
£28,000,000 sterling, the interest of which, at five 
per cent., will buy, at two and a half pence per 
pound, 126,000,000 pounds of sugar per annum ; 
or nearly the whole annual amount of sugar now 
consumed in France. 

The Cotton Manufacture. By pushing forward 
those products for which she has no capabilities, she 
has diminished those to which she is adapted. Coun- 
tries which formerly bought of her, now that she 
refuses to receive their products, refuse to receive 
hers. Hence, the exports of wine, her natural pro- 
duct, have fallen off. Before the Revolution, her 
export of wine averaged 100,000 tons per annum. 
Since 1820, it has varied from 39,000 to 03,000 tons. 



OBJECTIONS CONSIDERED. 157 

The result upon her silk trade has been the same- 
She has obliged other nations to raise silk for them- 
selves."* 

Such are some of the certain evils of such a sys- 
tem. These surely ought not to be voluntarily im- 
posed upon ourselves, without equal certainty of 
future benefit, and a benefit so much superior to 
that which we should otherwise have reaped, as to 
compensate us for all the evils and expenses which 
we impose upon ourselves. And if it do no more 
than this, we are the losers, by all the cost of the 
agency for doing that which would as well have 
been done without us. But, if the system itself do 
nothing towards hastening the time of profitable in- 
vestment in manufactures, then it is an immediate 
and a very great and wide-spreading evil at present, 
and it tends to nothing but evil for the future. 

To all this, it is, finally, objected, that a govern- 
ment having adopted a restrictive system, and hav- 
ing thus obliged persons formerly engaged in other 
branches of industry to embark in manufactures, is 
under moral obligation to continue that protection ; 
at least so long as to enable the manufacturer to 
change his mode of employment without injury. 
To this objection I have no desire to make any reply. 
It is a question of morals, and not of political econo- 
my. Whatever the goverment has directly or indi- 
rectly pledged itself to do, it is bound to do. But 
this has nothing to do with the question of the expe- 
diency, or inexpediency, of its having in the first in- 
stance, thus bound itself; nor with the question 
whether it be not expedient to change its system 
as fast as it may be able to do so, consistently with 
its moral obligations. 

For these reasons, I do not believe that the direct 
efforts of government are to be numbered among the 
means for encouraging the application of labor to 

* I have marked the above passage as a quotation, although 1 
have abridged the extract, without giving the exact words, 

14 



158 OBJECTIONS CONSIDERED. 

capital. Their good effect, if it exist, must, there- 
fore, be sought for, not in their effect upon produc- 
tion, but upon something else. 

But, it may be asked, can a government do no- 
thing to promote the industry of a people, and to in- 
crease the amount of their production 1 I answer ; 
they can do much. 

1. They can enact wise, wholesome, and equitable 
laws, and thus protect the individual in the exercise 
of his right of person and property. 

2. They can do much to accomplish the univer- 
sal diffusion of the means of knowledge, by the pro- 
motion of education among all classes of the people. 

3. They can do much for the promotion and ex- 
tension of science, by fostering seminaries of learn- 
ing. 

4. They can originate that knowledge, which 
must otherwise be obtained at great individual ex- 
pense. As, 

1. By experimental farms, of which the results 
should be accurately registered, and published to 
the whole community. 

2. By experimental manufactures, which might 
show, from time to time, what branches of manufac- 
ture could profitably be introduced into a country, 
and how they might be most successfully conducted. 

In this manner, much might be done, and at small 
expense. When these means have been tried, and 
have failed, it will be time enough to make other 
and more expensive experiments. 

5. They can do much, by confining themselves to 
their own appropriate duties, and leaving every 
thing else alone. The interference of society with 
the concerns of the individual, even when arising 
from the most innocent motives, will always tend to 
crush the spirit of enterprise, and cripple the produc- 
tive energies of a country. What shall we say, then, 
when the capital and the labor of a nation are made 
the sport of party politics ; and when the power 
over them, which a government possesses, is abused, 



OBJECTIONS CONSIDERED. 159 

for the base purpose of ministering to schemes of po- 
litical intrigue 1 

So far as I am able to discover, such are the most 
important conditions on which the productiveness of 
any society depends. They are briefly these : In- 
dustry and Frugality, Virtue and Intelligence. Pos- 
sessed of these, no nation, with the ordinary blessing 
of God, can long be poor. Destitute of either of 
them, whatever be its natural advantages, no nation 
can ever long be rich. Patriotism, no less than reli- 
gion, would, therefore, teach us to cultivate these 
habits in ourselves and in others ; and he is the pur- 
est patriot who cultivates them most assiduously. 



BOOK SECOND. 



EXCHANGE. 

Exchange, is a transaction, in which two indivi- 
duals mutually and voluntarily transfer to each 
other the right of property, to a given amount, either 
in capital or labor. 

This transfer must be both mutual and voluntary by 
both parties, or else it is robbery by the one party. 
If property, without the right of possession, be given 
in exchange, it is fraud. If I give a horse in ex- 
change, which does not belong to me, I confer no 
right of property ; for I have none to confer ; since 
the real owner may reclaim him, at any moment. 
The exchange may be either of capital by both par- 
ties, as if A and B exchange wheat for corn ; or of 
capital for labor, as when A gives B a bushel of 
wheat for a day's labor ; or of labor for labor as 
when A agrees to work for B to-day, on condition 
that B shall work for him to-morrow. Exchange is 
of three kinds, viz. : 

I. Barter in general or exchange in kind. 

II. Exchange by means of a metallic currency. 

III. Exchange by means of a paper currency. 



CHAPTER FIRST. 

OF BARTER OR EXCHANGE IN KIND. 

SECTION I. 

OF THE PRINCIPLES IN THE PRESENT CONSTITUTION, 
WHICH GIVE RISE TO EXCHANGE. 

1. It has been already shown, that human labor, 
of some kind, is necessary to production ; that is, to 
the creation of whatever has the power of gratifying 
human desire. Hence, without labor, no desire 
would be gratified ; that is, the race would speedily 
perish. As we have said before, the law of our be- 
ing, imposed upon every individual, enacts that, by 
the sweat of our face we shall eat our bread. 

2. But by labor exerted upon any substance, in 
such manner as to give it value, we establish over 
that value, either in whole or in part, the right of 
property. If the original capital were our own, we 
possess that original capital, together with all the 
additional value, which the change that we have 
effected has created. If, by labor upon the capital 
of another, we have raised its value, we establish a 
right to a portion of it, to be estimated by the re- 
spective values of the labor and capital employed. 
Nay, this capital is nothing but the result of pre-ex- 
erted labor. So that the capitalist contributes his 
past, and the laborer his present labor, and they 
share the product between them. 

3. Hence, from the very conditions of our being, 
the act of creating a value appropriates it to a pos- 
sessor. This holds true of every thing not the spon- 
taneous gift of God. Hence, every thing created by 

14* 



162 PRINCIPLES WHICH GIVE EISE TO EXCHANGE. 

man, belongs to some man; that is, he possesses 
over it the right of property. And this right of pro- 
perty is exclusive ; that is, he has the right to use it 
as he will, to the exclusion of every man and of all 
men. And, provided he do not interfere with the 
rights of others, no man can interfere with his use 
of whatever product he has created, without a viola- 
tion of moral law. 

4. Different men are constituted by the Creator 
with different aptitudes for different pursuits, and 
with different dispositions towards those pursuits. 
One man is adapted to investigate, and another to 
apply to practice, the laws of nature, and another to 
perform the operation by which those laws are made 
to create value. And these aptitudes are still fur- 
ther subdivided. One man is better adapted to in- 
vestigate physical, another intellectual, and another 
moral laws. Thus, also, in the various pursuits of 
operative industry, one man prefers agriculture, an- 
other manufactures, and another navigation. And 
it is found, as might be expected, that the disposition 
towards a particular operation, severally corresponds 
with a man's aptitude for it ; that is, that, in general, 
a man is most strongly disposed to devote himself 
to that particular occupation, for which God has 
given him the greatest aptitude. Indeed, the dispo- 
sition, in most cases, will do very much to create the 
aptitude. A man always labors more successfully 
in an occupation which he likes, than in one which 
he dislikes. 

5. Hence, a great public, as well as private ad- 
vantage, arises from every one's devoting himself 
to that occupation which he prefers, and for which 
he is specially fitted. Inasmuch as he likes it best, 
he is thus happier than he would be in the pursuit 
of any other. Every one thus being able to do that 
which he likes best, every one will derive from this 
source, all the happiness which it is able to confer. 
And, inasmuch as he is better fitted for it, he will, 
with the same labor, create a greater amount of va- 



PRINCIPLES WHICH GIVE RISE TO EXCHANGE. 163 

lue than he will by labor in any other employment. 
He will also create the value much more perfectly. 
The annual amount of value, created in a com- 
munity, will thus be greatly increased, with the 
same amount of labor, and, with a much greater 
amount of happiness. If every man labored at that 
employment in which he could create an amount of 
value equal to twenty, there would be, by the whole 
society, just twice as much created, as if, by chang- 
ing occupations, each one labored at that for which he 
could create a value equal only to ten. If all the 
different classes of laborers were, for a year, to be 
obliged to exchange work with each other, every 
one can perceive that, for that year, production 
would almost absolutely cease. 

6. Were this all, though every man created his 
own particular value with the greatest possible suc- 
cess, yet each man Avould, manifestly, possess but 
one value. The wheat grower would have nothing 
but granaries full of loheat ; the carpenter, nothing 
but ranges of houses ; the stone cutter, nothing but 
piles of stone ; and the shoemaker, nothing but thou- 
sands of shoes. But while there exists in every 
man, both the aptitude and the disposition for the 
creation of a 'particular value, there exists equally 
in every man, a desire to enjoy every value that can 
be created. A man may like to create a value of 
which he desires to use but very little himself; nay, 
for which, in itself, he perhaps has even less desire 
than most other men. The man who is the fondest 
of fishing, may be, by no means, a great lover of 
fish. He who is the fondest of hunting, may be, by 
no means, the fondest of game. No man supposes, 
because a man is fond of fox-hunting, that he is 
fond of fox-eating. Thus, we see, that the desire 
for the creation of value, is one thing, and the desire 
for using the value created, is' another. The one is 
limited to single objects, and the other is as widely 
extended a,s the objects to which it can be directed. 
And it is evident, that the one form of desire is as 



164 NATIONAL EXCHANGE. 

much intended to be gratified as the other. He who 
created the desire, and also created the object which 
would gratify it, intended the one for the other, re- 
stricting man only to the modes and degree of grati- 
fication which He has appointed. Civilization and 
social happiness advance, just in proportion as the 
greatest number of the desires of man are gratified, 
in conformity with the laws of the Creator. 

7. We see, then, that man is created with the ap- 
titude and the desire for the creation of one product, 
but with the desire for the enjoyment of a thousand 
products, and, that the gratification of one of these 
forms of desire is as much the intention of his Crea- 
tor, as the gratification of the other. He is intend- 
ed to produce one thing, and to hold this thing pro- 
duced by the right of property, while at the same 
time, every man is intended to require, for the grati- 
fication of his desires, a thousand things. Now, it is 
the existence of these contrary indications in his na- 
ture, that creates the necessity for exchange. The 
right to use his product as he pleases, is also the 
right to transfer it to whomsoever, that is, to ex- 
change it with whomsoever he pleases, and for 
whatever he pleases. By doing this, all the indi- 
cations of his nature are fulfilled. The right of pro- 
perty is preserved inviolate. Every one may em- 
ploy his own capital and industry as he pleases, 
that is, as will best promote his own happiness, 
and also as will add the most abundantly to the 
wealth of the whole community ; and, at the same 
time, by means of the products of his single branch 
of industry, he may procure every object of desire 
that every other man has created. And, inasmuch, 
as by division of labor, on the principle of which we 
have spoken, a larger amount will be created, and 
in greater perfection, he will procure every object at 
less labor, and in more perfect condition, than 
would be possible in any other manner. 

The necessity of exchange, therefore, as truly en- 
ters into the conditions of our being, as that of pro- 



NATIONAL EXCHANGE. 165 

duction. Without exchange, there could be no divi- 
sion of labor, and, of course, only the smallest possible 
amount of production. Without exchange, there 
would rarely be any stimulus to labor ; for labor could 
add but little to our means of gratification, beyond 
the most absolute necessaries of life. There would be 
no stimulus to form societies, since, as man depended 
solely upon himself, he might as well be solitary as 
social. Hence, all progress in civilization would be 
hopeless, and each generation would tread in the 
footsteps of that which had preceded it. 

8. I have, thus far, spoken merely of exchange 
between the individuals of the same society. I 
think it evident, however, that the same principles 
apply with equal force to the exchanges between 
different societies. 

The aptitudes of different nations for the creating 
of different products, has, in many cases, been fixed 
by unchangeable, geographical, and physiological 
law. Cotton, coffee, spices, dye-stuffs, sugar, rice, 
and many of the most valuable fruits and medicines, 
can be cultivated only in southern latitudes. Wool, 
wheat, and bread-stuffs generally, flax, and the 
most valuable animals, are found only in temperate 
climates. Iron is found in northern latitudes ; and 
furs, hemp, and feathers are brought from climates 
still further north. One country is better adapted 
to commerce, another to agriculture, and another to 
manufactures. 

Besides, as we have already shown, a society, at 
one period of its history, is better adapted to one 
sort of production than to another. When capital is 
scarce and land is cheap and fertile, a nation is bet- 
ter adapted to agriculture; when capital becomes 
abundant and land dear, it becomes gradually better 
adapted to manufactures ; that is to say, nations, as 
well as individuals, both by original endowment and 
accidental circumstances, have their special adapta- 
tions to the creation of particular products. I sup- 
pose it unnecessary to state, that nations, that is, 



166 NATIONAL EXCHANGE. 

people, if left to themselves, are like individuals, 
disposed to avail themselves of the peculiar advan- 
tages bestowed upon them by their Creator. Self- 
interest teaches them this lesson with sufficient 
clearness, and they willingly practise it, if left to 
their own natural instincts. 

It is also evident that, by each nation's devoting 
itself to that branch of production for which it has 
the greatest facilities, either original or acquired, its 
own happiness will be better promoted, and a great- 
er amount of production created, than in any other 
manner. And while all nations thus appropriate 
their industry, a much greater amount of annual 
value will be created for the whole human race, 
than by any change that could possibly be made. 
If Cuba should relinquish the raising of coffee and 
sugar, and devote herself to the raising of wheat; 
and New York, relinquishing the culture of wheat, 
should betake herself to the raising of coffee and 
sugar, would not both communities be poorer, and 
would not the price of coffee, sugar and wheat be 
increased over the whole world ; that is, would not 
all the world, and these countries especially, be 
poorer than they are now ? 

But, whilst it is thus evident that every nation is 
intended by the Creator to improve its own advan- 
tages, that is, to create that product for the creation 
of which it has the greatest facilities ; it is also the 
fact, that every nation, and every individual of that 
nation, desires the productions of every other nation ; 
and is happy in proportion as he enjoys them. What 
nation could be happy without the cotton of the 
South, the hemp and iron of the North, or the wool, 
wheat, and manufactures of temperate climates'? 
Nay, let any individual look at the clothes which he 
wears, the furniture of his room, or the food and 
utensils of his table, and he will be immediately con- 
vinced, that every latitude of both hemispheres, and 
almost every country on the globe are tributary to 
his happiness. His own country has peculiar adap- 



NATIONAL EXCHANGE. 167' 

tations, but they are adaptations for but few pro- 
ducts, while every citizen of that country requires for 
his convenience, nay, almost for existence, the pro- 
duction of every other country. These desires can 
be gratified only by national exchanges. Hence we 
see, that national exchanges enter as much into the 
constitution of things under which we are created, 
as individual exchanges. 

And the final cause of this constitution is, in both 
cases, equally evident. 

Individuals are made thus dependent upon each 
other, in order to render harmony, peace, and mutual 
assistance, their interest as well as their duty. 
Where men are -mutually dependent upon each other, 
the prosperity of one, is the prosperity of all ; and 
the adversity of one, is the adversity of all. No one 
can enjoy many of the blessings which God has in- 
tended for him, only in so far as others enjoy them 
also ; and no one can be deprived of them, unless 
others are deprived of them to a considerable degree 
also. Thus, we see that the individual progress of 
man, is, by the constitution of things, indissolubly 
connected with, if not absolutely dependent on, his 
social progress. 

And, for the same reason, nations are dependent 
upon each other. From this universal dependence, 
we learn that God intends nations, as well as indi- 
viduals, to live in peace, and to conduct themselves 
towards each other upon the principles of benevo- 
lence. Where all are mutually dependent, as in the 
former case, no one can prosper without increasing 
the prosperity of all, nor suffer without bringing 
suffering upon all. Hence, it is truly our interest 
to seek the happiness, peace, and prosperity of other 
nations, as it is to seek the happiness, peace, and 
prosperity of our own nation. 

9. From the above constitution it is evident, that 
universal exchange is as necessary to the welfare, 
and even to the existence of the human race, as uni- 
versal production. We have already seen, that in 



168 NATIONAL EXCHANGE. 

all the departments of human industry, a great sav- 
ing, both of time and expense, is effected by division 
of labor. This is as true of labor in exchange, as in 
any other case. Since, then, exchanges must be 
made, it will be better for the ivhole, if 'a fart of a 
society devote themselves exclusively to the busi- 
ness of making them. 

Thus ; suppose that, in a given society, the labor 
is divided, so that each individual devotes himself to 
the creation of a given product. One man raises 
wheat, another rye, another wool; one labors upon 
iron, another upon wood, another upon leather, &c. 
Now, these persons can procure the productions of 
each other only by exchange. But if every one, 
every time he needs any thing, is obliged to leave 
his labor to find a purchaser for his product, he will 
lose much time himself, and will consume a large 
portion of the time of all his neighbors. It would 
frequently take as much time to exchange a pair of 
shoes, as it would take to make them. This addition- 
al time must enter into the 'price of the shoes ; and 
hence, these, and every other article of consumption 
would rise in price accordingly. 

In such a case as this, it would clearly be a great 
benefit to the whole society, if some one should de- 
vote himself exclusively to the business of making 
exchanges. Every producer might then deposite 
with him whatever he had to exchange, instead of 
going in search of a purchaser. When this was 
done, every one, by going to him, might ascertain 
immediately, what was to be exchanged, throughout 
the whole community, and at what price ; and also, 
what was required in exchange. He would thus be 
able, at once, to procure, by his own product, what- 
ever was procurable for it ; and to know what he 
must produce, in order that he may procure what he 
may need. Thus, the labor of a whole day, or of 
several days, might be accomplished in a few min- 
utes, in a much more perfect manner, than by any 
other method. Hence, as all the time unnecessarily 



NATIONAL EXCHANGE. 169 

consumed in the other method would be saved, much 
more time might be appropriated to production. 
As, in a given time, and with given labor, there 
would be greater production, every thing would be 
cheaper, that is, every one would be richer ; and, at 
the same time, a reasonable profit would remain for 
him who devoted his time to the labor of exchange. 
Hence, we see that exchangers are as necessary 
to the cheapness of production as producers them- 
selves. Hence, we also see how absurd is the out- 
cry sometimes raised against them, because it is said 
they produce nothing. Did not a large class of the 
community devote themselves to this employment, 
it is impossible to conceive what would be the price 
of the most common and necessary untensil. Were 
the farmer obliged to carry his wheat or his cattle to 
Sheffield, to exchange for needles for his wife, or for 
a sickle for himself, who could estimate what these 
utensils would cost 1 If the laborer were obliged to 
go to Birmingham for a spade, which he must use 
in New York, what would be the price of a spade, 
and how would he ever be able to gain a subsis- 
tence 1 The laborer may sometimes complain that 
the merchant is rich, and that he is poor ; that the 
merchant stands at his desk, while he labors in the 
street ; that the merchant rides in his carriage, while 
he travels on foot. But it may be to him some con- 
solation to remember, that were not the merchant 
rich, the laborer would be still poorer, for every ar- 
ticle would be dearer ; and, besides, there would be 
no one to pay for the labor with which alone he is 
able to purchase it. Were not the merchant to be 
at his desk, the poor man would have no labor to do 
in the street ; and were not the merchant able to 
ride in his carriage, the laborer would be obliged to 
go barefoot. And accordingly, we see that whenev- 
er mercantile business, that is, the business of ex- 
changes, is the most successful, then are the means 
of living cheaper in proportion ; and then are the 
15 



170 RETAIL MERCHANTS. 

operative classes richer ; and the avenues to riches 
are the most widely open to all. 

The persons who conduct the exchanges of a com- 
munity are called merchants. They are of two 
classes, viz : Retail Merchants and Wholesale Mer- 
chants. 

The retail merchant carries on exchanges between 
the inhabitants of the same country. He purchases 
of the manufacturer or the importer, in quantities 
too large for the means of the individual consumer, 
and sells again in any quantities that the consumer 
may desire. This produces a great saving of time, 
and of course of expense, to the whole community. 
Were the manufacturer obliged to leave his labor, to 
sell a yard of calico, the price of calico would be 
trebled. Were the importer obliged to open his 
hogsheads, to sell a pound of sugar, he must charge 
a price accordingly. And, besides, as each importer 
and manufacturer is supposed to confine himself to 
one particular product, the purchaser would be 
obliged, frequently, to go great distances, and trans- 
act with a great number of persons, business which 
he may now be able to accomplish with a single in- 
dividual. Every one must thus perceive, that a 
consumer saves much time by purchasing his sugar, 
tea, coffee, pepper, salt, &c., at one shop, instead of 
going to the wholesale importers of these articles 
individually ; specially if, as is frequently the case, 
they lived some hundreds of miles asunder. So, 
therefore, it is much more economical to buy needles, 
tape, cotton, calico, and silk, at one shop, than to 
go to the several individuals, in different places, who 
have imported or made these articles in large quan- 
tities. In consequence of this advantage to the com- 
munity, the retail dealer is able to charge a profit 
on all the articles which he sells, and, at the 
same time, to furnish them at a much lower price 
than that at which the purchaser could procure 
them, in any other manner. The purchaser not 
only procures them cheaper, but he procures them 



WHOLESALE MERCHANTS. 171 

of a better quality. It is the business of the retail 
dealer to understand the quality of every article in 
which he traffics, and it is for his interest to pur- 
chase it cheaply, and of as good quality as it can be 
purchased in the market ; since it is on the goodness 
and cheapness of his articles, that his custom de- 
pends. The consumer is thus enabled to employ for 
his benefit, a skill vastly greater than his own; and 
at a much less cost, than that at which he could ac- 
complish the business himself. Hence, retail deal- 
ers are as necessary to the prosperity of a country, 
and to the cheapness of productions, as any other 
class of persons. And it will be found very univer- 
sally, that it is much more economical to employ 
their services, than for a man to undertake to do 
their business for himself. 

The wholesale merchant, conducts the exchanges 
between the individuals of different nations. He 
exports, in bulk, the commodities of his own coun- 
try, and imports, in return, the commodities of an- 
other country. His own interest induces him to ex- 
port whatever is at the lowest price in his own 
country ; that is, of what may be there in the greatest 
abundance ; and bring back, in return, whatever will 
command the highest price at home ; that is, of 
which there is the greatest need. And his own in- 
terest will, of course, teach him to procure what he 
brings home, at the place where it can be had at 
the cheapest rate ; so that he may be able to furnish 
it at the highest profit to himself, and at the lowest 
price to others. Hence his interest, and that of the 
community, are the same. It is for the interest of 
the community that those commodities, of which we 
have a superfluity, should be exported ; and the 
fact of this superfluity is known by the reduction of 
their price, in comparison with the price of other 
commodities at home, or of the same commodity in 
other countries. It is for the interest of the mer- 
chant to export the same commodity, because the 
lower the price at which he purchases it at home, 



172 WHOLESALE MERCHANTS. 

on the better terms he can exchange it abroad. It 
is for the interest of the community, that those ob- 
jects of desire which are most wanted should be 
brought back in return ; and the rise in their ex- 
changeable value is the proof that they are so want- 
ed. It is for the merchant's interest, also, to bring 
back these very commodities ; for, from these alone, 
can he expect gain, and that gain will be the greater, 
in proportion as he procures them on the most favor- 
able terms ; that is, as he procures them where they 
are the cheapest and most abundant. Hence, his 
gain will be in proportion as he can transfer the 
productions of the earth from those regions where 
they are least wanted, to those regions where they 
are most wanted. And this is precisely what the 
interests of society require should be done. 

To the merchant, it is, of course, a matter of no 
consequence, what he exports and what he imports. 
Unless a commodity were more wanted at home 
than that for which he would exchange it, he could 
have no motive to make the transfer. And that it 
is so wanted, is evident from the fact, that the com- 
munity is willing to give a higher price for it than 
for that which is exported. If he desired it, he 
could not make any profit, except by consulting the 
wants of the community ; and that profit will be 
the greater, in proportion as he is able to consult 
those wants with the greatest possible nicety. His 
gains are the gains of the community, and his losses 
are the losses of the community. Hence, there is 
no reason why he should, in any manner, be re- 
stricted in the nature or the quantity of the arti- 
cles which he exports or imports. The constitution 
of things, and his own self-interest, provide all the 
regulating forces which the nature of the case re- 
quires. 



EXCHANGEABLE VALUE OF PRODUCTS. 173 



SECTION II. 

THE GENERAL DOCTRINES OF EXCHANGE. 

1. Of the rate of Exchange, or the exchangeable 
value of Products. 

If two men have created their respective products, 
and are prepared to exchange them, it is manifest 
that they will not commonly exchange them, quanti- 
ty for quantity ; because, a given amount of labor 
will procure a much larger amount of some products 
than of others. The same labor which will procure 
an ounce of gold, will procure an hundred pounds of 
iron. Hence, the gold miner will offer to exchange 
labor for labor ; that is, an ounce of gold for an hun- 
dred weight of iron. And, if the miner of iron will 
not exchange on these terms, the miner of gold will 
procure his iron for himself. Since, if he can thus 
procure it for himself, by a less amount of labor, 
than by exchange, he will do so. Hence it is, that 
the general rate, at which every thing is exchanged, 
is the amount of labor which it costs to produce it. 

But we have previously seen, that labor appears 
in two forms, that of annual capital, and of fixed 
capital. Both of these enter into consideration, when 
we speak of labor as determining the exchangeable 
value of products. 

For instance : Suppose I purchase wheat, and 
grind it by hand ; I sell it again, at an additional 
price, proportioned to the labor which I have be- 
stowed upon it. Suppose I thus earn money enough 
to erect a wind-mill ; I shall then be entitled to the 
same amount of wages per day for my labor, and 
also to an additional sum sufficient to pay the inte- 
rest of what was expended in my wind-mill, and 
also to pay for its wear and tear, in performing the 
15* 



174 EXCHANGEABLE VALUE OF PRODUCTS. 

operation. The price of grinding was, at first, only 
that of immediate labor ; it is now the price of im- 
mediate labor, together with the interest on the 
amount of the pre-exerted labor. It is, however, to 
be observed, that notwithstanding I am receiving 
emolument from two sources, and am growing rich 
faster than before, it is on terms vastly more favor- 
able to the community, inasmuch as I can, for the 
same remuneration, give ten times as much in re- 
turn as I could before. 

The case is the same, if two separate individuals 
are employed in the operation, the one owning the 
capital or stock, and the other performing the labor. 
In this case, the cost consists of the wages of labor, 
and of the interest on, and the wear and tear of, the 
capital. Here, however, as before, the community 
is the gainer ; because, for the wages of labor and 
interest on capital, it receives a much larger product 
than it received before, for the wages of labor alone. 
Thus, if a machine cost one thousand dollars, and 
there were paid for the use of it, one hundred dol- 
lars a year, this, added to the wages of labor, at a 
dollar a day, would be four hundred dollars, allow- 
ing three hundred working days a year. This 
would be but one hundred dollars more than would 
be paid for the labor of the man alone. But a man, 
with such an instrument, would, probably, in a year, 
accomplish ten times as much work as he could 
accomplish without it. All the gain of the change 
is, therefore, for the benefit of the public. We 
see, therefore, that labor and the interest of capital, 
must, necessarily and justly, enter into the price 
of every product which is offered in exchange. 
The producer can never, for a long period, charge 
more than a fair remuneration for his labor and cap- 
ital ; because, then, it would be cheaper for the 
other party to produce it for himself. He cannot, 
for a long period, charge less ; because, in this case, 
lie will be ruined, and must leave the employment ; 
and thus the number of producers will be diminish- 



EXCHANGEABLE VALUE OF PRODUCTS. 175 

ed, and the value of the product will rise to the 
average rate of profit. 

Nevertheless, for short periods, the exchangeable 
value of any product may be raised above the rea- 
sonable rate of profit. If the demand exceed the 
supply, there will be a competition among the buy- 
ers; the more wealthy will overbid the less wealthy, 
and the price will rise. This rise of price will induce 
others to devote themselves to supplying the demand, 
and thus the price will fall. If the supply be greater 
than the demand, there will arise a competition 
among the sellers, and the price "will fall, and will 
remain depressed, until either the demand increase, 
or else until so many leave the employment, as shall 
reduce the supply to the average demand. 

It is evident that it makes no difference, as to the 
result, whether the ratio between supply and demand 
be disturbed by a change in supply or in demand. 
If the demand continue the same, a diminished sup- 
ply produces the same effect as would be produced 
by an increased demand, while the supply remained 
the same. And, on the other hand, demand being 
the same, an increased supply produces the same re- 
sult as when, supply being the same, the demand is 
increased; that is, in the one case, the exchangeable 
value of the product will rise; in the other case, it 
will fall. 

It deserves, however, to be remarked, that this ef- 
fect produced by the disturbance of the ratio between 
supply and demand will be greater or less, according 
to several circumstances. These are: 

1. The durability of the commodity. If it be one 
which, unless it be consumed immediately, will be- 
come worthless, the fall of price, from increased sup- 
ply, is great. Such is the case with oranges, 
lemons, figs, fresh fish, &c. If, on the contrary, it 
be a commodity which will endure for years, with- 
out loss of intrinsic value, the effect will be less. 
Thus, an increased supply of iron, produces in the 
market a comparatively small variation in the price. 



176 EXCHANGEABLE VALUE OF PRODUCTS. 

2. Variation of price, from this cause, depends, 
also, upon the ease or difficulty with which the sup- 
ply may be increased. Thus, manufactured articles 
can generally be produced in a short time, and, if 
necessary, in a much more than usual quantity. Agri- 
cultural products, on the contrary, require a year, in 
order to be brought to perfection. Hence, if a crop 
fail this year, we know that there must be a dimin- 
ished supply in the whole country, for the remainder 
of the year; and hence, as there must be a scarcity, 
every one is prepared to give as much as he is able. 
But, if cotton cloth be high, unless the rise of price 
be owing to a diminished production of the materi- 
al, this high price will cause more cloth to be made, 
and hence, before long, the price will fall. We there- 
fore purchase only as much as we absolutely need, 
and wait for the favorable change. 

3. It will be affected by the nature of the demand 
for the article. If it be an article of universal ne- 
cessity, it will rise more rapidly by scarcity, and sink 
less rapidly by increased supply; while, if it be an 
article of mere luxury, it will rise less rapidly by 
scarcity, and sink more rapidly by increased supply. 
When every one must have a commodity, the demand 
is constant, and every one is alarmed at the prospect 
of suffering; hence, he purchases it at any price. 
And, on the other hand, if the supply be abundant, 
the holder knows that the ordinary consumption will 
soon reduce the quantity in market, and rather than 
sell at a reduced profit, he will wait for the change 
of price. On the contrary, if an article of luxury 
be scarce, men begin to abandon it, and thus the de- 
mand is quickly reduced. If it be abundant, the 
number of purchasers does not increase with the sup- 
ply, because men have not yet learned to use it; hence, 
its fall in price is rapid, being not sustained by a 
correspondent increase of demand. 

These, I think, are the principal circumstances 
which enter into the exchangeable value of products. 
They are variously combined and modified, so that 



RAPIDITY OF EXCHANGES. 177 

they may sometimes counteract, and sometimes ex- 
aggerate each other. But, I think, that, by apply- 
ing them to the actual occurrences of life, we may 
generally be able to explain the fluctuations of price, 
■which are daily taking place in the market. 

II. When an article of produce is offered for ex- 
change, the producer has conferred upon it his last 
value, and it is now ready for the consumer. 

By the consumer, here, I do not mean him only 
who gratifies his desire by the ultimate destruction 
of the product, but also him who receives it for the 
purpose of giving to it some other modification. The 
exchanger confers upon it no new value. It is the 
same when it passes out of his hands to the consu- 
mer, as when it came into his hands from the produ- 
cer: that is, in general, exchange confers no value 
at all upon products ; since they receive no modifica- 
tion by passing from the hands of one person to those 
of another. 

1. Hence it will be seen, that the more rapidly ex- 
changes are made, the better. The more rapidly they 
are made, the less is the loss of interest, and the smaller 
the advance which the exchanger must charge for 
his labor. If a merchant purchase to-day a thou- 
sand dollars' worth of iron, which he sells to-mor- 
row, he charges us for his labor and skill, and adds 
only the interest for one day upon his capital. If he 
must keep the iron a whole year before he sell it, he 
must charge the interest of a whole year, or else he 
will be the loser by his operation. 

Nor is this all. If he sell his iron to-morroAV, he 
may invest the same sum, in iron, and sell it again 
fifty times in the course of the year; and thus re- 
ceive a profit fifty times a year upon the use of his 
skill and labor, while, in the other case, he receives 
this profit but once. Hence, when exchanges are 
rapid, he can afford to exchange at a less rate for 
his labor and skill, than when they are slow. And 
hence, brisk exchanges are for the benefit of both 
buyer and seller; and a benefit to one, is a benefit to 



178 DIFFERENCES OF PROFIT. 

all. It is for this reason, among others, that we can 
frequently purchase at a cheaper rate in a large city, 
than in a country town. 

2. And hence we see a reason, why the profit up- 
on one operation in some kinds of exchange, is great- 
er than that in others. The profits of the wholesale 
merchant on a pound of tea, are, for instance, great- 
er than those of the retail merchant. He who sends 
his capital to the East Indies, and receives in return 
a cargo of teas, must charge interest and risk, for 
the whole time consumed, from the day that he parts 
with his property, until the day that he receives it 
again. This may be nearly two years. The retail 
merchant, who purchases one of those chests of tea, 
may sell it all in a week, and thus invest it fifty times 
in the course of a year. Now, if the profit on an 
exchange were as great in the one case as in the other, 
the annual gains of the retail merchant would be ex- 
orbitant. These are reduced, by competition, to the 
average level; and hence, his gains on any single ope- 
ration are much less than those of the wholesale mer- 
chant. The same principle applies to production. 
The greater the time consumed in an operation, the 
larger is the profit on each article which justly be- 
longs to the producer. 

3. But, though the act of exchange add nothing 
to the absolute value of the commodity, it adds great- 
ly to its relative value, that is, to the convenience 
both of the buyer and the seller; inasmuch as it en- 
ables both to gratify a desire, which, otherwise, would 
have been unsatisfied. If I want a pen-knife more 
than I want a dollar, and a hardware merchant wants 
a dollar more than he wants a pen-knife, we make 
the exchange with each other. The dollar is the 
same as before: it will buy no more in his hands, 
than it will in mine. The pen-knife is the same as 
before; it has neither gained nor lost; and I might, 
if I chose, exchange it with the next man I met, for 
a dollar. But, both the merchant and myself are 
benefitted by the exchange. I can use the knife for 



DIFFERENCES OF PROFIT. 179 

purposes for which I could not use the dollar; and 
thus render my labor per day much more valuable. 
The merchant has received a full remuneration for 
his labor, capital, and skill, and is, by so much, richer 
than he was before. That both of us have been bene- 
fitted by the exchange, is evident from the fact, that 
neither of us would make the exchange back again. 
If a hungry man have a piece of silver, and a baker 
have a loaf of bread, they will readily exchange with 
each other. The silver is the same, and the loaf is 
the same, as before; but still, both parties are richer 
and happier; and neither would the hungry man 
take back the same piece of silver for his loaf; nor 
would the baker take back the loaf for the silver. 

The case is the same with nations. If a nation 
exchange iron, of which it has more than it can con- 
sume; for wheat, which it cannot produce, with a 
nation which has more wheat than it can consume, 
but produces no iron; the wheat and the iron are 
the same as before ; but each nation is richer and hap- 
pier; each has one more desire gratified than before, 
and is able the next year to increase, more largely, its 
stock of production. That both are happier than be- 
fore, is evident; because neither would reverse the ex- 
change, if it were in its power. And thus, in gene- 
ral, whenever two nations mutually wish to ex- 
change their productions with each other, and are 
mutually gratified when the exchange is made, it is 
evident that both are made happier, and that the ex- 
change has been advantageous to both parties. 

Hence we see, how fallacious is the notion former- 
ly entertained, that, by exchange, only one party is 
benefitted ; and consequently, that what one party 
gains, the other party loses. Were this the case, no 
country could grow rich by exchange, unless by im- 
poverishing every other country; and the gain of 
one nation, would, be nothing else than a transfer of 
the wealth of other countries to itself. On the con- 
trary, precisely the reverse is the case. The most 
favorable commerce to any one country, is, that by 



180 DIFFERENCES OF PROFIT. 

which the riches of both countries are the most ra- 
pidly increased. A merchant, whose gains were all 
derived from the impoverishment of his customers, 
would very soon have none but paupers for neigh- 
bors. A nation, whose traffic caused the impover- 
ishment of another nation, would very soon be obli- 
ged to discontinue commerce. The only traffic of 
this sort, is the African slave trade, and the result 
has been the almost entire depopulation of the slave 
coast. And thus, we see, in political economy, as 
in morals, every benefit is mutual ; and we cannot, 
in the one case, any more than in the other, really 
do good to ourselves, without doing good to others ; 
nor do good to others, without also doing good to 
ourselves. 

In what I have said of exchange, it is to be obser- 
ved that I have spoken of exchange simply, and not 
as combined with the labor of transportation. The 
labor of transportation gives an additional value to an 
article; that is, it confers upon it change of place. 
This has been already spoken of. It is true, a mer- 
chant frequently performs this labor, or causes it to 
be performed.. In this case, he is entitled to a dou- 
ble profit; first, for the labor of transportation, and 
secondly, for the labor and skill of exchange. He 
who labors in either of these employments, is enti- 
tled to the profit derived from that in which he la- 
bors; and, he who labors in both, is entitled to the 
profit of both. In speaking of the profit of exchange, 
it is always to be observed, that the profit of the 
merchant is derived, 'partly, from his labor and skill, 
and partly from his capital. He who exports to 
France one hundred thousand dollars' worth of cot- 
ton, must first buy the cotton; that is, he must have 
one hundred thousand dollars to invest in this ex- 
change. He exchanges the cotton for silks or for 
calicos, and replaces his first investment. He is en- 
titled to interest and risk on that capital, for all the 
time that it is out of his hands, besides the remuner- 
ation for his labor and skill. 



CONDITIONS OF EXCHANGE. 181 

III. Of the conditions on which the frequency or 
infrequency of exchanges depends. 

It is manifest that the more numerous are the ex- 
changes, the better must it be for a community. As 
no one exchanges, except to gratify his desires, and 
to improve his condition, the more numerous the ex- 
changes, the greater the number of desires which 
will be gratified, and the more universally will the 
condition of a people be improved. It is also evident, 
that facility of exchange is one of the greatest stim- 
ulants to production. If a man cannot transform 
his products into what he desires, he will labor for 
nothing but the mere necessaries of life. But in just 
so far as he is able, by exchanging the products of 
his labor, to procure objects of desire, his motives to 
industry will be quickened. And the same is true 
of nations. Every one, whether poet, or philosopher, 
or traveler, in setting forth the prosperity of a coun- 
try, has described its harbors thronged with ships, 
its roads covered with merchandise, and its sails 
whitening every ocean. But all these are .only so 
many forms of expressing the general fact, that a 
nation's exchanges, both internal and external, are 
abundant and prosperous; that is, that its producers 
are able, by their own labor, easily to avail them- 
selves of every other production which they may de- 
sire. 

We have said that exchange is a voluntary and 
mutual transfer of the right of property. 

If this be the case, there must exist, in each party, 

1. A mutual desire for the property of the other, 
greater than the desire for his own. 

2. Mutual ability; that is, each party must be able 
to offer to the other, such a consideration as will in- 
duce him to make the exchange. 

Where both of these exist, exchanges will, of course, 

take place. If A have a dollar which he wishes to 

part with for B's knife, and B has a knife which he 

wishes to part with for A's dollar; as soon as each 

16 



182 CONDITIONS OF EXCHANGE. 

knows the wish of the other, they will mutually grat- 
ify each other, and the exchange will take place. 

3. As, however, the right of property alone is fre- 
quently transferred, while the property itself is not 
delivered at the time of the exchange, there is always, 
in such an act of exchange, a liability to fraud. Be- 
sides, a commodity may not prove to be as good as it 
was represented, or the owner's title may not be sat- 
isfactory. In all such cases, there is an opportunity 
for the practice of dishonesty ; and the risk of snffer- 
ing from such dishonesty, would, of course, diminish 
the frequency of exchanges. Hence, frequency of 
exchanges will also depend upon security of the right 
of property, and the existence of the means for en- 
forcing that right. 

If we now reflect upon these facts, I think we must 
perceive, that the desires of a people for exchange, 
will depend, principally, upon their intelligence. Their 
ability will depend upon the 'productiveness of their 
labor and capital ; and the security of property will 
depend upon their individual and social morality. 
That is, exchanges will be frequent in proportion to 
the intelligence, iDealth, and moral character of a peo- 
ple. 

1. Exchanges will be frequent or unfrequent, in 
proportion to the intelligence or ignorance of a peo- 
ple. It is only by the diffusion of knowledge that 
men ascertain how their desires may be gratified. It 
is by knowledge that the desires of man are brought 
into relation with the objects intended by his Crea- 
tor for their gratification. Every one knows how 
the dormant desire for exchange is awakened in the 
bosom of a child, the moment he enters a toy shop. 
I suppose that strangers rarely pass through the 
streets of a large city, without being strongly, if not 
successfully tempted to lighten their pockets, before 
the termination of their journey. Every reader 
knows, how strongly his desire for books is enkind- 
led, by passing a few minutes in a book store. And 
ihus wc see, how instantaneously a desire for ex- 



CONDITIONS OF EXCHANGE. 183 

change arises in the breasts of savages, as soon as 
they are brought into contact with civilized man. A 
multitude of objects for the gratification of desire, of 
which they were before ignorant, is set before them ; 
and they are frequently stimulated to exchange, to 
their own disadvantage. The early voyagers give 
us striking illustrations of this fact. They represent 
themselves as overwhelmed with these rude people 
who were incessantly offering every thing which they 
supposed their visitors would desire, for nails, beads, 
pieces of looking-glass, iron hoops, and almost every 
thing on which they could lay their hands. 

When, however, I speak of intellectual cultivation 
in this connection, it is to be understood that I by 
no means refer exclusively to the knowledge and 
mental discipline which is acquired by the reading 
of books. Books, though important to the intellec- 
tual progress of a country, are only one means of in- 
troducing and circulating knowledge. Knowledge is 
gained by observation, and by conversation; and it 
is, if I may say so, absorbed from the intellectual at- 
mosphere which we breathe; it is derived from the 
general spirit of the community in which we live. 
Thus, a man rarely goes from home into another 
country, or into another section of the same country, 
without obtaining a knowledge of various convenien- 
ces of which he was before ignorant. Familiar in- 
tercourse between men of different pursuits, conduces 
to the same result. Newspapers, filled with adver- 
tisements, circulated over every district of a country, 
have, in this respect, a powerful effect. All these 
causes combine to show every individual what he 
can produce which other men want, and how he may, 
by exchange, procure from them what he wants him-* 
self. 

We see all this illustrated, m every district separ- 
ated by nature from the surrounding country, as a 
valley inclosed by mountains difficult of access, or 
an island which has but rare communication with 
the main land. The progress of such a population 



184 CONDITIONS OF EXCHANGE. 

in the arts, and in possessing themselves of the con- 
veniences of life, is always much less rapid than 
that of their more highly favored neighbors. They 
know but little of what is going on around them, 
and their desires are but feebly stimulated to im- 
prove their condition. The state of such a popula- 
tion is always suddenly and rapidly improved, by 
any means of easy communication with their neigh- 
bors. They are stimulated at once to develope their 
own resources, and thus to share in the benefits en- 
joyed by those around them. Thus, the Pastor 
Oberlin, a truly great and good man, when he 
wished to improve the condition of the Ban de la 
Roche, commenced by inducing his people to repair 
their roads. Hence we see, how important, in this 
respect, to a nation, are all means of internal com- 
munication, and the facilities for. the universal cir- 
culation of the commonest forms of knowledge. 

2'. Exchanges will be numerous, in proportion to 
the productiveness of a country. 

We have already seen, that simple desire, in both 
parties, is not sufficient to effect exchanges. Each 
party must both possess, and be willing to part with, 
so large a portion of the product desired by the other 
party, that the other is willing to make the desired 
exchange. Every man desires a horse and car- 
riage, and every man who either raises horses or 
manufactures carriages, is willing to part with them 
for an equivalent. But until every man have some- 
thing to offer for a horse and carriage, which will 
induce the other parties to make the exchange, 
every one cannot be so accommodated. If A have 
wheat which he is willing to exchange for rye, but 
if B either have no rye which he is able to offer in 
exchange, or have it not in sufficient quantity to 
remunerate the labor of A, no exchange can take 
place. But if both have been successful, and each 
have enough of his own product for his own use, 
and is also able to offer, on fair terms, a portion in 



CONDITIONS OF EXCHANGE. 185 

exchange, they may then exchange with advantage, 
and, of course, they will do so. 

Or, again : If A and B have only so much surplus 
product as will enable them to make this one exchange 
with each other, much as they may desire the pro- 
duct of C and D, these last desires must be ungrati- 
fied; since no further exchange can take place. Or, 
on the contrary, if A and B have abundance, but C 
and D have been unfortunate, and have nothing which 
they can part with, the same result will take place. 
But let A, B, C and D be all blessed with abundance, 
and all have surplus products which they are willing 
to exchange with each other, and in such proportions 
as will reward each other's industry; and they will 
all exchange accordingly. Thus, exchanges must al- 
ways be most numerous, in the most prosperous con- 
dition of a country ; or, as every one knows, mer- 
cantile business is most prosperous, that is, exchanges 
are most abundant, when manufacturing, agricultu- 
ral, and all other kinds of industry are most produc- 
tive. 

And we see, moreover, that this principle is of uni- 
versal application. A good harvest in one country, is 
a benefit to every other country; because the favor- 
ed country desires a larger amount of the productions 
of her neighbors, and has a larger fund wherewith 
to pay for them. Hence, the exchanges between such 
a country and every other country, are increased. 
On the contrary, a famine, or a war, or any other 
calamity in one country, is a calamity to every 
other country, because the unfortunate country 
wants less of the productions of its neighbors ; 
since it has less wherewith to pay for them. Its 
exchanges, therefore, are of necessity diminished!. 
Hence, that merchant is short-sighted, as well as 
morally thoughtless, who expects to grow rich by 
short crops, civil dissensions, calamity, or war, in. 
the country with which he traffics. A wiser and 
farther-sighted reflection, would teach him that it is 
very difficult to grow rich by trading with beggars, 
16* 



186 CONDITIONS OF EXCHANGE. 

and that the benefit of one is always the benefit of 
all. To illustrate all this by a single case, let us 
ask what would be the amount of exchange effect- 
ed by the inhabitants of Great Britain, France, and 
the United States, either among themselves or with 
each other, if the productiveness of these several 
countries, were no greater than it was in the time of 
Julius Csesar ? 

3. Exchanges will be numerous in proportion to 
the moral character of a people. 

1. Individual morality is highly favorable to ex- 
change, inasmuch as it lessens the liability to fraud, 
and, of course, the risk to which exchanges are ex- 
posed. No one will, if he can avoid it, trade with a 
knave. In proportion to the prevalence of knavery, 
will be the disinclination to exchange. 

2. On the general moral character of a people de- 
pend the equity of their laws, and, of course, the 
full enjoyment of the right of property. As has 
before been remarked, exchanges are not always 
completed at the instant. One party frequently 
parts with his property to-day, on condition of re- 
ceiving the property of his neighbor a month hence. 
Here is a liability to fraud. Unless the one party 
have, by means of just and equitable law, the pow- 
er of enforcing contracts, exchanges will be greatly 
restricted. 

3. On the morality and intelligence of a people, 
will greatly depend the freedom of its civil constitu- 
tion; that is, the accuracy with which it limits the 
power of the society, over the person and property 
of the individual. When these are improperly un- 
derstood, or insufficiently guarded, the property of 
the citizen is liable to suffer from the avarice or the 
oppression of rulers. To this evil, property, under- 
going exchange, is specially liable. Exchange ex- 
poses to the view of the public, the possession of the 
parties, and, of course, enables a tyrant to seize upon 
them with greater certainty. For this reason, ex- 
changes are frequently, under bad governments, 



STAGNATION OF BUSINESS. 187 

made in secret; and, for this reason, under such a 
government, they are always as few as possible, and 
at great expense to the consumer. 

Thus, in general, the frequency of exchanges will 
be in proportion to the wealth, and to the intellec- 
tual and moral character of a people. And since, as 
the progress of a nation, in these respects, will pro- 
mote her mercantile prosperity, we may easily see 
what will depress it. The frequency of exchanges 
will diminish, as a nation decreases in intelligence 
and virtue. Of the truth of this remark, all history 
is filled with illustrations. After what has already 
been said, it will not be necessary to enlarge upon 
this topic. These effects, moreover, are principally 
to be observed, by comparing the condition of a 
country at long periods ; and tracing the effects of 
measures and events in- those directions which are 
not always obvious to every observer. 

While, however, the government and laws of a 
country remain the same, there frequently occurs a 
temporary diminution of exchanges, which is de- 
nominated a stagnation of business. This deserves 
to be noticed. As the business of a merchant is to 
execute exchanges ; that is, to perform the labor of 
exchanging, for those who wish to exchange their 
products, a stagnation of mercantile business must 
occur, when there is less of this operation to be per- 
formed ; that is, the merchant is ready to perform 
the exchange, but a less number of persons desire it 
to be performed. 

The reason why the merchant feels this more 
seriously than any other man, is obvious. All his 
capital is invested in this kind of operation. He 
buys of one party, that is, invests his capital in one 
kind of product, and sells to another, that is, re- 
ceives his product in exchange, and he supports 
himself by the profit of these two operations. The 
moment exchanges cease, his means of support are 
dried up ; for he is supported only by making them. 
He can buy, but he cannot sell. Hence there arises, 



188 STAGNATION OF BUSINESS. 

as it is called, a stagnation of business ; that is, a 
cessation or diminution of exchanges. The princi- 
pal causes of this, are the folloAving : 

1. It may arise from a diminished desire for a 
particular product. Thus the decrease of the Cath- 
olic religion, during the wars of the French revolu- 
tion, diminished the desire for fish, which the Cath- 
olics eat in Lent, and on fast days. This produced 
a stagnation of business in the fish trade. 

It may arise from change of fashion. Thus, 
when shoe-strings were substituted for shoe-buckles 
the demand for shoe-buckles ceased ; the manufac- 
turers of shoe-buckles were thrown out of employ- 
ment ; and there was a stagnation of business in 
this kind of trade. 

It may arise from the fact, that one particular 
product has been supplanted by another. Thus the 
increasing cheapness of cotton cloth, has materially 
diminished the demand for linen. 

Whenever, from any cause, the desires of men 
change, then the traffic in the article neglected, must 
be diminished ; since it is very difficult to sell to a 
man a commodity which he knows he does not 
want. To this disadvantage, all articles which 
derive their value from fashion and caprice are ex- 
posed ; and, on this account, they are always sold at 
a higher profit, in order to compensate for the ad- 
ditional risk. 

2. Stagnation in business may arise from a tem- 
porary failure in production. This must, of neces- 
sity, produce it ; since, as we have already seen, 
two men cannot exchange, unless they both have 
something to part with ; and the amount and num- 
ber of every man's exchanges will be in proportion 
to the amount which he is able to part with, and 
the amount which others are able to offer him in 
exchange. Thus, if the crop of sugar should be 
reduced one half, there would be a stagnation in the 
sugar business ; that is, there would be but half the 
quantity of sugar to be exchanged, and half the 



STAGNATION OF BUSINESS. 189 

quantity of other things to be exchanged for it ; in 
other words, half the number or amount of ex- 
changes would be made. And, in general, the fail- 
ure of any crop, or the diminution of any kind of 
production, must cause a stagnation of business in 
that article itself, and also in whatever is usually 
exchanged for it. Thus, also, if production lan- 
guish from civil war, or from insecurity of property, 
exchanges of all kinds diminish, towns are depopu- 
lated, harbors are deserted, and the accumulated 
treasure of past generations insensibly melts away. 

3. A glut, or stagnation of business, may also 
arise from comparative poverty in one of the parties 
making the exchange. If a nation is able to pro- 
duce but one hundred thousand dollars' worth of 
exports, it can purchase but one hundred thousand 
dollars' worth of imports. This, then, will gener- 
ally be the annual amount that will be brought to 
its market. But if from any cause, a larger amount, 
say one hundred and fifty thousand dollars' worth, 
is brought thither, there will arise a glut, or tem- 
porary stagnation of business. There will be fifty 
thousand dollars' worth more than can be ex- 
changed. The reason is not, that they do not want 
the additional fifty thousand dollars' worth of the 
productions of other countries, but that they have 
nothing with which to purchase it. Hence, after 
one hundred thousand dollars' worth have been 
purchased, there will be sellers, but no buyers. It 
will be seen, however, that such a case can gener- 
ally exist only in new, small, or in very unproduc- 
tive countries, or for short periods ; or else in res- 
pect to articles of which the consumption of the 
whole community is but small. 

4. A stagnation of business may be the effect of 
legislation. Suppose the importation of coffee into 
this country be a million pounds per annum. This 
must be paid for, in some way, by the productions 
of our own industry ; and the demand for those 
productions to this extent, is for the sole purpose of 



190 LEGISLATIVE ENACTMENTS. 

paying for this coffee. There must, of course, be 
a great variety of exchanges required to collect 
these products, to bring them to the seaports, to ex- 
change them for coffee, and again to circulate this 
coffee throughout the country. Now, let a duty be 
laid upon coffee, which shall double its price, and 
thus diminish its consumption one half. The de- 
mand for one half of the products by which it was 
paid for, ceases, the demand for coffee, to this extent, 
also ceases ; and the labor of transportation on both 
articles is reduced one half. Here must be a stag- 
nation of business, in both of these articles ; and 
half the shipping thus employed, will, for a time, 
be useless. Hence, there must, of course, arise a 
stagnation of business ; that is, a permanent dimin- 
ution of exchanges, in all the departments of in- 
dustry affected by this arrangement. The same 
effect will be produced by any act of legislation by 
which public confidence is shaken, the currency 
disordered, or the facilities of exchange diminished. 

IV. Of the effects of legislative enactments on 
Exchange. 

I think it too obvious to need remark, that duties 
on imports can have no favorable effect on exchange. 
Their only effect must be, to raise the price of the 
products, and, of course, to diminish ■ the ability in 
both parties to exchange. Every one knows that 
the exchanges between two places are diminished 
by any natural obstacle to communication. If a 
road were so bad that it cost five dollars per hun- 
dred weight to transport merchandise between two 
places, every one knows that exchanges between 
these places would be fewer than they would be if 
the road were improved, so that transportation could 
be effected for twenty-five cents per hundred weight. 
Now, it makes no difference whether this additional 
four dollars and seventy-five cents be the result of the 
badness of the road, or of a transit duty between the 
two places. The diminution of exchange which it 
causes, will be precisely the same. In a severe win- 



LEGISLATIVE ENACTMENTS. 191 

ter, our northern harbors are closed, for weeks or 
months, by the ice. This is a natural tariff, and 
imposes a large protecting duty, inasmuch as ex- 
changes must be effected, if they be effected at all, 
at a vastly greater price than in summer. I sup- 
pose it is not generally believed, that this has no 
effect on the number of exchanges ; and I have 
never heard it mentioned, as specially favorable to 
domestic industry. 

I therefore think it evident, that government can 
do nothing to facilitate exchanges by means of dis- 
criminating duties. They have, however, attempt- 
ed to accomplish this result, by means of bounties 
on particular exports. 

The manner in which this is accomplished, is this. 
Suppose we were not able, profitably, to produce 
and offer to other nations in exchange, some particu- 
lar article, say, for instance, iron. To encourage 
this export, a bounty is granted on every ton of iron 
exported, equal to the difference between our cost of 
producing it, and that at which other nations pro- 
duce it. Our producer can then sell it in a foreign 
port, as cheap as the producer from another nation. 
But where does this bounty come from 1 Why, it 
is from a duty laid on some other import, or else 
from a tax laid on some other product. The iron 
worker is no better off than any other man, and all 
the other exchangers or producers, or both, are just 
so much Avorse off; and the value of capital and 
labor is, by the whole operation, diminished, as we 
have shown in the article on the effect of legisla- 
tive enactments upon production. Did any mer- 
chant ever grow rich by selling under cost, for the 
sake of competition with his neighbor? It would be 
very difficult to show how a nation can grow rich 
in the same way. But, as the principles, on which 
this discussion depends, have been already treated 
of in the article above alluded to, I need not here 
repeat them. 

If, then, governments can do nothing in this man- 



192 LEGISLATIVE ENACTMENTS. 

ner to promote the business of exchanges, in what 
manner may exchange be affected by legislation '? 

We have said that exchanges are the natural re- 
sult of mutual desire and mutual ability. In what 
maimer may these be influenced by legislative 
enactments ? 

1. Of Desire. If by desire be meant the original 
impulses implanted in the bosom of man, it is evi- 
dent that these can be neither increased nor dimin- 
ished. These are a fixed quantity, with which we 
cannot interfere. These desires, however, generally 
remain dormant, until they are awakened into ex- 
ercise by the presence, or by the knowledge, of their 
appropriate objects. It is by a knowledge of the 
existence of these objects, therefore, and of the 
modes by which they may be obtained, that the 
desire for exchange is excited. Hence it is plain, 
that the desire for exchange may be increased ; 

1. By the general diffusion of knowledge, espe- 
cially of that sort of knowledge by which man is 
taught how he may benefit his condition. This will 
be accomplished generally, by a universal diffusion 
of the means of common education. 

2. By removing all impediments to the diffusion of 
knowledge. In this respect, a duty on imported 
books, which is really a tax on knowledge, is, in a 
free government, absurdly injudicious. 

3. By increasing the physical means for the dissem- 
ination of knowledge and intelligence. This will be 
done by allowing every facility for internal improve- 
ment ; by an efficient and cheap post-office system, 
pervading every portion of the country, and bring- 
ing to every man's door the information circulating 
throughout the civilized world. 

I do not know that a government can do more 
than this to excite in a people the desire to ex- 
change. 

2. Of Ability. The ability to exchange depends, 
as we have shown, upon productiveness. Hence, 
every means by which the productiveness of indus- 



INTERNAL IMPROVEMENTS. 193 

try is increased, will also benefit exchange. These 
have already been alluded to, in the former book, 
and need not here to be repeated. 

There is, however, one branch of productive in- 
dustry which is more immediately connected with 
exchange than any other, and which deserves, on 
that account, in this place, a more minute consider- 
ation. I refer to internal improvements. On this, 
I shall offer a few remarks. 

An internal inprovement, is any means by which 
the operation of change in place may be performed 
at a less expense than formerly. It is, in fact, a la- 
bor-saving machine, peculiar to this branch of indus- 
try* Of those at present in use, the most common 
are roads, railways, and canals. 

What is peculiar to these machines, is, First, they 
are very costly, and hence, in general, require more 
capital than can be commanded by a single individ- 
ual ; and, therefore, must be owned by a number of 
persons associated together. Secondly : they must 
pass through the lands of various individuals who 
have no special interest in them, and are thus liable 
to interfere with the right of property. This inter- 
ference can be allowed only by the whole commu- 
nity ; and, hence, there arises a necessity for legis- 
lative enanctment, granting permission to this effect. 

Now, inasmuch as such machines, if properly 
constructed and skillfully managed, are greatly for 
the benefit of the whole society, it is manifestly the 
duty of society to grant all suitable facilities for con- 
structing them. Inasmuch, however, as they, like 
any other privileges, are liable to be abused, and 
may, in the end, injure the interests which they 
were intended to benefit, it becomes a legislature, on 
all such occasions, to reserve, at the outset, the right 
of visitation ; the power to modify or amend, on 
equitable terms, the privileges granted, in such man- 
ner, as the exigencies of the public may require. 

Whether a government should itself undertake 
17 



194 INTERNAL IMPROVEMENTS. 

the work of internal improvement, is, however, not 
so clear. On this subject, it may be suggested : 

1. If it will not be profitable ; that is, if capital 
thus invested will not be as productive as that in- 
vested in other employments, it ought not to be un- 
dertaken by the public, because the capital thus in- 
vested must be taken from other employments ; that 
is, it must be taken by force from a more produc- 
tive, to be invested in a less productive employment. 
If it be said, though it be not itself productive, it 
may enrich the district in which it is constructed ; 
the answer to this is, then let that district pay for 
it, unless it can be shown to be either wise or just, 
to impoverish one district, for the purpose of en- 
riching another. 

2. If it will be productive, private associations, in 
an intelligent community, will, with proper encour- 
agement, be ready to undertake it. And of the 
question of profitableness, private individuals will 
judge much more accurately than a government, 
because the facts are equally known to both ; the 
degree of intelligence is likely to be as great in the 
one case as in the other ; and the one party can be 
influenced by no motive but self-interest, which is 
here also the interest of the public; while the other 
party may be influenced by party politics, sectional 
jealousy, love of power, and a thousand disturbing 
causes. 

3. A work of this sort will be executed at much 
less expense by private individuals, than b'y a gov- 
ernment. The costliness of all public works is 
every where proverbial. The greater the number of 
intermediate agencies by which any work is per- 
formed, the more imperfectly is the work done, and 
the greater is the unnecessary expenditure. Now, 
government is itself an agent. It must perform the 
work by means of another set of agents. Under 
these may be half a dozen others, in the form of 
contractors and sub-contractors. All these unneces- 
sary agencies must be paid out of the public purse, 



INTERNAL IMPROVEMENTS. 195 

and their accounts adjusted by those who have no 
special motive to encourage economy. All this is 
reversed, when those, who conduct the work, pay 
for it themselves, and whose profits, in the end, 
must depend upon the goodness of the work and 
the cheapness of its execution. 

4. A work of this kind, when completed, will be 
more faithfully superintended by private, than by 
public owners. The private owner knows that he 
must conduct his operation economically, and main- 
tain the favor of the public, or else he will gain 
nothing by his investment. A government is under 
no such salutary check. 

5. But a still stronger objection to the confiding 
of such works to the public, is, the amount of pat- 
ronage which it must, of necessity, place in the 
hands of a government. The power to make roads 
and canals whenever it pleased, and to employ upon 
them whomsoever it pleased, once placed in the hands 
of a party, would perpetuate it in office forever, in. 
spite of any violation of right which it might per- 
petrate, or any corruption of which it might be 
guilty. There can be but little doubt that a large 
portion of the investment in internal improvement 
made by our state authorities will prove an almost 
total loss. 

For these reasons, it seems to me that the safer 
rule would be to leave works of this kind to be ex- 
ecuted by private incorporations. This, however, is 
only a general, and not an universal rule. Works 
may be of such magnitude, or they may be of so 
great national importance, that they must be exe- 
cuted and controlled by the public at large. These 
cases are, however, I apprehend, the exceptions. The 
rule I suppose to be as above stated. 

There are, however, other improvements, of very 
great importance, the superintendence of which be- 
longs, of necessity, to a government ; it is that class 
of improvements which reduce the expense, and 
lessen the risk of external commerce. Among these, 



196 TREATMENT OF FOREIGNERS. 

the most important are the removal of obstructions 
from harbors ; the location of buoys and the erec- 
tion of light-houses ; the execution of accurate sur- 
veys ; and the publication of accurate charts of the 
whole coast of a country. The more perfect these 
become, the less is the risk of shipwreck, in leaving 
and approaching a coast ; of course, the less is the 
cost of insurance, and the less the price of every 
thing imported and exported. Hence, a nation, of- 
fering these advantages, becomes a better market for 
all other nations, and they will the more readily re- 
sort to her for exchanges. Improvements of this 
sort are one of the most economical forms of nation- 
al investment ; they frequently save, in a single 
year, the whole cost of their erection. The loss of 
property and life, by shipwreck, on almost every 
coast, is enormously great. The greater part of this 
loss might probably be saved, by judicious expendi- 
ture upon improvements on the coast, and proper 
regulations for the government of pilots. 

3. I have said, above, that exchanges will be ef- 
fected by the security or insecurity of the right of 
2)roperty. Hence, legislators can do much to pro- 
mote the prosperity of a country, by the enactment 
of wholesome laws, by which contracts shall be en- 
forced, wrongs redressed, and injuries prevented. 
And they should be specially careful that they are 
not guilty, in their social character, of what they 
forbid to others in their individual character. They 
should be scrupulous in the observance of individ- 
ual right, and should remember, that a single indi- 
vidual is as important as a nation, when the ques- 
tion of justice is concerned. 

And the same principles apply to the treatment of 
foreigners. No foreigner can traffic with another 
country, without placing his property in the power 
of the citizens of that country. If his rights be 
respected, and he be assured of the benefit of equal 
laws, he will invest his property abroad as freely as 
at home; and will, with confidence, and on the 



TREATMENT OF FOREIGNERS. 197 

most moderate terms, effect exchanges to as great 
an extent as he is able. Hence, under these circum- 
stances, exchanges will be effected to the greatest 
advantage of both countries, and they will natural- 
ly flow from other countries to such an one as this. 
And the reverse will be the case, if the rights of 
foreigners are disregarded. Other nations will desire 
their custom, if we do not. Commerce will leave 
our shores, and we shall be left in the well-known 
condition of the dog in the manger. The fable, I 
believe, informs us that he was starved to death. 



17* 



CHAPTER SECOND. 

OF EXCHANGE BY MEANS OF A METALLIC CURRENCY. 



SECTION I. 

OF THE USE OF A CIRCULATING MEDIUM. 

In the preceding chapter, I have endeavored to 
illustrate the general principles of exchange, and the 
conditions by which it is regulated. Exchange, 
however, like every other benefit which we enjoy in 
this life, can only be accomplished by labor. But 
in this, as in every other case, it holds true, that a 
great advantage is gained by increasing the produc- 
tiveness of labor ; that is by enabling the same in- 
dividuals, by the same labor, to accomplish a greater 
amount of exchange. And it holds true in this, as 
in other cases, that the result of labor is more per- 
fect, just in proportion as the productiveness of labor 
is increased. 

But in order to accomplish this, an intermediate 
instrument or tool must be used. A man who can- 
not split a log by the direct use of his hands, will 
find no difficulty in splitting it with a beetle and 
wedges. So, also, he who would find it impossible 
to effect a dozen exchanges in a day, if he insisted 
on exchanging the products themselves, will find no 
difficulty in doing it in a few minutes, by means of 
the instrument which has been invented for this 
purpose, and he will not only thus do it in a shorter 
time, but also on better terms, and with much great- 
er exactitude. 

This instrument, of so much importance in ex- 



DIFFICULTIES OF EXCHANGE IN KIND. 199 

change, is money ; to a consideration of the nature 
and uses of which, we shall devote this and the suc- 
ceeding chapters. The present chapter will be con- 
fined to the consideration of a metallic currency. 
We commence with the use of a circulating me- 
dium. 

In treating of this subject, we shall first con- 
sider the difficulties which must necessarily embar- 
rass exchange in kind ; and, secondly, the manner 
in which these difficulties are removed by means of 
a circulating medium. 

I. The difficulties which attend upon exchange in 
kind. 

By exchange in kind, I mean exchange of com- 
modity for commodity, as when a farmer exchanges 
wheat for sugar, or pork for iron, &c. 

1. Suppose a producer to have prepared his pro- 
duct for consumption. If he be obliged to exchange 
in kind, it may be a long time before he finds anoth- 
er person who desires the article which he has crea- 
ted. If he be obliged to wait long, his product, if 
perishable, will be either destroyed or deteriorated. 
He must go in search of a purchaser ; and, if he at 
length find one, he may have consumed, in the 
search, as much time as the article originally cost. 
This must be added to the cost of the article, or else 
he will be a loser. But, by this additional cost, the 
product is no better ; it is only dearer. This must, 
of course, decrease the demand ; and hence, by all 
this additional cost, both parties are poorer. 

2. But it is to be remembered, that the producer 
not only wants to part with his product, but also to 
part with it for some definite object of desire. He 
who has raised wheat, does not wish simply to part 
with his wheat, but also to receive in exchange for 
it, tea, or coffee, or iron, or salt, or clothing. He 
must, therefore, in order to effect the exchange 
which he desires, not only find some one who wishes 
for wheat, but also some one who is able to give 
him, in return, the precise product he desires. If he 



200 DIFFICULTIES OF EXCHANGE IN KIND. 

desire clothing in return, it will not be sufficient to 
find some one who offers him bread, or shoes, or 
butcher's meat. This, also, increases the difficulty 
of exchange, and, of course, the labor and the cost 
necessary to effect it. 

3. But this is not all. Men who wish to ex- 
change, do not always wish to exchange in equal 
amounts. A grazier who brings a fatted ox to mar- 
ket, may find persons enough who want a few 
pounds of beef, but very few who want a whole ox. 
The grazier cannot divide his ox, and give a part 
©f it for a few pounds of coffee or tea ; nor, proba- 
bly, does he require one fourth of the value of the 
ox, in any article which can be purchased in the 
town where it may be sold. He wishes to obtain, by 
the sale of the ox, additional provender for the sup- 
port of his remaining herd. This he cannot, per- 
haps, procure, except in the country ; or if he could 
procure it, the merchant who owns the provender, 
would not want a whole ox for butcher's meat. 
Thus, exchanges would be arrested; or must be 
made very rarely, and at great cost, and under every 
possible disadvantage. 

4. Such are the difficulties which attend upon the 
exchange of material products. But it will be man- 
ifest, at once, that material products give rise to but 
a small part of the exchanges which are, by neces- 
sity, made among men. One great article to be ex- 
changed is labor. This every man produces, and 
must"produce, by the law of his nature ; and this, 
every man is able to offer in exchange for the objects 
of desire. Now, were exchange only in kind, a 
man who had nothing but labor or skill to offer, 
would not be able to labor for those who desired his 
labor and who would give him the greatest wages 
for it ; but he must labor for those who were willing 
to give, in ever so small quantity, the articles which 
he needed for his support. The laborer in an iron- 
foundry would be obliged to take his pay in iron. 
But, as he could not exchange his iron with the 



DIFFICULTIES OF EXCHANGE IN KIND. 201 

baker, the butcher, or the clothier, he must go and 
work for these producers, for any compensation by 
which he might obtain for himself the necessaries of 
life. The workman of the baker must take his pay 
in bread. But he would want only a small portion 
of bread for himself, and he must spend his time in 
exchanging it for whatever else he needed. If he 
could not thus procure tea, coffee, clothing, and other 
necessaries, he must leave his occupation, and work 
for those who wished to exchange them for his la- 
bor. The physician must take his fee in iron, or 
bread, or butcher's meat ; and if any of his patients 
produced what he did not want, he must either at- 
tend them gratuitously, or they must die without 
assistance. Besides this, there are many products 
incapable of division. If a hundred men engaged 
in building a ship or a house, how would they take 
their pay in kind, without taking the ship in pieces, 
and thus rendering their work wholly useless '} 

5. Hence we see, that were exchange only in 
kind, there would be no division of labor, except in 
its most imperfect form. No man could perfect him- 
self in any one art; because, by the exercise of that 
alone, he could not possibly procure the means of 
sustenance. I have already shown, how impossible 
it would be for him to do this by the practice of any 
one of the ordinary mechanical trades. How much 
more, when these trades are minutely subdivided. 
I have elsewhere stated the advantages of this sub- 
division. But how could this be effected, if ex- 
change were made on! y in kind 1 Suppose a man 
employs his time in the single process of heading 
pins, or in forming the rivets for the handles of pen- 
knives ; how could he subsist by exchange in kind ? 
Who would give him what he needed for subsis- 
tence, for his pin-heads, or for his knife-handle 
rivets 1 Hence, division of labor, so essential 
to the productiveness of human industry, to 
the progress of society, and to the use of natural 
agents, could exist only in its most elementary 
forms, were exchange limited to exchange in kind. 



202 UTILITY OF A CIRCULATING MEDIUM. 

And, if it be said that this inconvenience conld be 
avoided by establishments for barter, it will at once 
appear that these could remedy it only in part. 
They could assist in the exchange of nothing but 
material products, and of those which were not 
rapidly perishable. They could present no relief 
for exchanges of labor. Hence, they would do al- 
most nothing to facilitate division of labor, and 
could carry forward the progress of society in no 
respect beyond its most rude beginnings. 

From such causes as these, arises the necessity of 
a circulating medium; and it will be easily seen, in 
what manner, by means of a circulating medium, 
they are remedied. 

1. Suppose that the producer can always ex- 
change his product, not for the article which he im- 
mediately wants, but for some other article which is 
universally wanted, and wanted at all times, and in 
all quantities. As soon as the producer has, by ex- 
change, possessed himself of this commodity, he 
may then, on account of its universal desirableness, 
easily procure, by another exchange, whatever he 
may need. In this manner, by means of two ex- 
changes made at the same instant, the labor of days 
or of weeks may be accomplished. Thus, if salt 
were this commodity, and every one wanted salt in 
all quantities, at all times, and at a fixed value ; by 
exchanging every thing for salt, and then exchang- 
ing salt for whatever we might desire, the labor of 
exchanges would be vastly diminished. 

2. This convenience, however, will be much in- 
creased, if the article of universal desire be small in 
bulk ; because, in this case, much of the labor of 
transportation will be avoided. Were the lace-mak- 
er obliged to exchange his lace for salt, he would be 
obliged to furnish himself with a cart, in which to 
receive his payment. And thus, in general, instead 
of a purse, in which to carry our money, we should 
require, for this purpose, the use of a wagon and 
horses. 



•UTILITY OF A CIRCULATING MEDIUM. 203 

3. If this circulating medium be also minutely di- 
visible, it will possess still greater conveniences. 
The producer may then part with all, or with a part 
of his product ; and he can procure, with a circula- 
ting medium, as small a portion of that which he 
wishes in exchange, as he may choose. The far- 
mer, instead of exchanging one part of his wheat 
for tea, another part for coffee, and another part 
for clothing ; or else, exchanging it all for tea, and 
then endeavoring to find customers for his tea, may 
exchange it all for the circulating medium, procure 
as much of each as he pleases, or, if he choose, 
make no farther exchange whatever. 

4. The case is still stronger, when labor is one of the 
articles to be exchanged. The laborer will now no 
longer be obliged to labor at any price, for him who 
is able to give him in exchange what he immediate- 
ly wants ; but he may labor for any one who Avill 
give him, in return, this object of general desire. 
Hence, he is now at liberty to labor for him who 
will give him the best wages ; that is, where his 
industry and skill will be employed most advan- 
tageously to himself. With this he can procure what- 
ever he wants, in such portions as he may desire. 

5. The practicability of the division of labor now 
becomes immediately apparent. If the laborer be 
paid in the article of universal desire, it makes no 
difference whether the person who produces what he 
wants, needs or does not need, his particular pro- 
duct. He wants the object of universal desire, and 
this is enough ; for, by this, the laborer can effect 
exchanges with him or with any one else. If he 
can procure this circulating medium by means of 
pin-heads, or knife-handle rivets, this is all that he 
wants. He is now as independent as though he 
produced that which every one wants ; since, by 
means of what he produces, he can procure that 
which every one wants. Thus, we see, that every 
man is, in this manner, able to devote himself to that 
in which his skill will be most productive to him- 



204 UTILITY OF A CIRCULATING MEDIUM. 

self. And all men thus making the first exchange 
in this object of universal desire, all are equally in- 
dependent ; and all are able, in the most successful 
manner, to avail themselves of the fruits of their 
own industry. 

Now, whatever it is that performs the office of 
thus facilitating exchanges, is called a circulating 
medium. So great has been the necessity of some 
such instrument, that even the rudest nations have 
always been found adopting some such contrivance 
with advantage. 

Thus, the natives of the African coast were for- 
merly in the habit of using, as money, small white 
sea-shells, denominated cowries. 

In pastoral nations, cattle were frequently used as 
a circulating medium. Thus we are told, by Ho- 
mer, that the armor of Diomede cost nine oxen. 
Sheep, probably, were also used for the same pur- 
pose. The ordinary mode, among such nations, of 
estimating the wealth of an individual, was by the 
number of his flocks and herds. Hence, probably, 
arose the custom, among the Greeks and Romans, 
of stamping their earliest coin with the figure of an 
ox or a sheep. Hence, also, the Latin word pecunia, 
is supposed to be derived from pecus, a sheep. 

From reasons which will easily suggest them- 
selves, all other substances soon gave place to the 
metals, as a circulating medium. Different metals 
were, however, used at first by different nations. 
The first instance on record of the use of metals, as 
a medium of exchange, is found in Genesis 23 : 16. 
" And Abraham hearkened unto Ephron. And 
Abraham weighed to Ephron the silver which he 
had named, in the audience of the sons of Heth, 
four hundred shekels of silver, current money with 
the merchant." We see that at this time the money 
was weighed ; that is, was not paid by tale. I pre- 
sume that the metals were used as a circulating me- 
dium for a long period before they were fashioned 
into coin. At a much later period, the baser metals 



QUALITIES OF A CIRCULATING MEDIUM. 205 

were used as money by the Greeks and Romans. 
Thus the Lacedemonians, under Lycurgus, estab- 
lished iron as the circulating medium. The Romans 
used copper or brass in the early ages of their his- 
tory. Hence, ces signifies, in Latin, both brass and 
money. These, however, in all places, have long 
since given place to gold and silver, which are hence 
denominated the precious metals. These are now 
used for the purposes of money, throughout the 
known world, except among the rudest and most 
barbarous tribes. Copper is used only in the pay- 
ment of sums less in value than the lowest denom- 
ination of silver coin. In some countries, both gold 
and silver are made a legal tender in payment of 
debts ; in other countries, only one of these metals 
is used. In this country, both are thus established 
by law. In Great Britain, gold is the only legal 
tender for all sums greater than twenty shillings, 
and silver, for all sums of less amount. Copper is 
used only in payment of sums less than six cents. 



• SECTION II. 

OF THE QUALITIES NECESSARY TO THAT WHICH CON- 
STITUTES THE CIRCULATING MEDIUM. 

In order to render any substance available as a 
circulating medium, the essential quality required is, 
that it be universally desired as such. Its object is 
to facilitate exchanges, but it can accomplish this 
object, only by means of the willingness of the 
whole community to exchange for it every thing 
which they are willing to part with. If one indi- 
vidual of a community prefer one substance, and 
another individual another, exchanges will be em- 
barrassed, by unnecessary multiplication, and by 
18 



206 QUALITIES OF A CIRCULATING MEDIUM. 

the useless consumption of time. And if, on .the 
other hand, any substance be thus universally de- 
sired ; on account of the great facilities which it of- 
fers, and the great saving of labor which it effects, 
it will be immediately used for this purpose. And 
it will be so used, without any agency of govern- 
ment ; and even although a government did not ex- 
ist ; just as a man will use any other instrument for 
increasing the productiveness of his labor as soon as 
he can procure it ; simply for the reason that it is 
for his advantage. 

If the exchanges of a country were wholly inter- 
nal, it would be sufficient that such a circulating 
medium were universally acceptable in that country 
alone. But, inasmuch as every nation has impor- 
tant and extensive exchanges with other nations, it 
is an additional advantage to have the same sub- 
stance used as a circulating medium by all. We 
have already seen, that that exchange is the most 
profitable for a country, in which it exports what is 
relatively most abundant at home, and imports that 
which is relatively most wanted at home ; and im- 
ports it from that country in which, what it exports 
is most wanted, and what it imports is most abun- 
dant. Now, it is evident, that the circulating me- 
dium may be accumulated in any country, so that 
it shall be relatively lower in price than other com- 
modities. Thus, the precious metals may be so 
abundant in this country, that a merchant can pro- 
cure more iron in Russia by sending a given amount 
of silver, than by sending the flour which would 
here be equal in value to the silver. It is, therefore, 
for his advantage to send the silver, and it is equal- 
ly for the advantage of his country. And, for the 
same reason, if in this country, there be a relative 
scarcity, it will be for the advantage of other na- 
tions, as well as for our advantage, that they should 
send silver in exchange for our products. In this 
manner, exchanges are made, of that which is least 
wanted by both parties, for that which is most want- 



QUALITIES OF A CIRCULATING MEDIUM. 207 

ed by both. This enables both parties to supply 
themselves at the lowest rates. 

Besides, it is very desirable that the value of the 
circulating medium, be as little as possible liable to 
fluctuation. Now if the same substance be used in 
all the civilized world, this fluctuation, if not abso- 
lutely prevented, will be so restricted, as to produce 
the least possible amount of evil. When exchanges 
between countries are frequent and numerous, and 
the prices of all commodities are universally known 
by the merchants of both, as specie may be sent 
abroad with very little cost of transportation, a very 
slight advance in its relative value will cause it to 
flow in from other countries, and a very slight sur- 
plus will cause it to flow to other countries, until the 
common equilibrium be restored. In this, we see 
in what manner the universal employment of the 
same substance, by all nations holding intercourse 
with each other, will be an advantage to all ; inas- 
much as it will prevent any great fluctuation in its 
relative value in any particular country. 

While, however, it is the fact, that any thing 
which is thus universally acceptable will be used as 
money, there are various circumstances on which 
this acceptableness depends. Some of these are the 
following : 

1. Its cost, or, in other words, the amount of la- 
bor necessary to its production, must be as invariable 
as possible. Hence, it could not be a vegetable 
product, because the variations in the productive- 
ness of labor thus employed are very great. An 
abundant harvest produces a rapid fall, and a fa- 
mine produces a rapid rise, in the price of wheat. On 
this account, a metal is preferable: because, here 
the amount produced is directly and immediately 
dependent on the labor employed in producing it, 
and is less liable to be influenced by disturbing 
forces. 

'£. It should be an article of high price; that is, 
within a small bulk, it should concentrate a large 



208 QUALITIES OF A CIRCULATING MEDIUM. 

amount of value, or represent a large amount of 
labor. This is, of course, a great advantage, by 
saving the labor of transportation. Every one sees 
that the commerce of the world, at its present state, 
must instantly cease, if we were obliged to exchange 
our gold and silver for the iron money of Lycurgus. 
Yet, to this remark there is a limit. As a sub- 
stance may not be of a price sufficiently high, so it 
may also be of a price too high for the purposes of 
money. Precious stones are minerals, and they cost 
all the price at which they are sold ; but they are 
too dear to be used for this purpose ; that is, though 
they might answer for the exchange of great values, 
yet, for all common exchanges, they would be ut- 
terly unsuitable, because they would be of so 
small bulk, as to be very easily lost. 

3. The substance must be capable of division, 
without loss of value. As it is desirable that pro- 
vision be made for facilitating all sorts of exchan- 
ges, the substance used as money, should be capable 
of division into such portions as may suit the con- 
venience of every one, without itself suffering, by 
this division, any diminution of value. On this ac- 
count, also, the precious stones would be unsuitable 
for this purpose, because their value is not propor- 
tional to their size. A large diamond is worth sev- 
eral times its weight of small diamonds. If it be 
divided, its value is very greatly diminished ; and 
having been once divided, its value can never be 
restored. On the contrary, a lump of gold may be 
divided into one hundred pieces, and the value of 
all the pieces together, is equal to the original value 
of the whole. They may, if occasion require, be 
again united into one lump, and the value of the 
whole is the same as before. 

4. The substance should be of such a nature, that 
it can be easily verified ; that is, it should be sus- 
ceptible of such preparation, that every one can 
readily assure himself of its purity and weight ; 
that is, of its value. Unless this can be done, at 



QUALITIES OF A CIRCULATING MEDIUM. 209 

every exchange, every one must examine and try 
every piece by itself. This would consume much 
time, would require the possession of great skill in 
every individual, and would by its frequent repe- 
tition, soon wear away the substance itself. Hence, 
it is of advantage that the metals used for money 
should be peculiar in their weight and color, and 
that their appearance should attract attention, so 
that their peculiarities may be easily learned and 
distinguished. The brilliant lustre of silver and 
gold, therefore, adds very much to their fitness for 
coin. Their weight, also, presents a ready means 
for the detection of adulteration. Platina, which is 
used in Russia for the purpose of money, has the 
advantage of both of them in weight ; but it has no 
lustre, and, in appearance, it very much resembles 
the baser metals. This will be an objection to its 
universal acceptableness. 

5. It should be as little as possible, liable to de- 
cay. Were it easily destructible, great losses would 
constantly occur ; as the loss must fall upon the in- 
dividual in whose hands it happened at the time to 
be. And besides, it would be from this cause liable 
to so great fluctuation in value, that it could never 
be used as a circulating medium. Were fish or wheat 
the circulating medium, since both are liable to rapid 
decay, a change of weather might frequently ruin 
a man. No one would exchange, at such hazards, 
for the circulating medium, and all exchange would 
be made in kind. Could the circulating medium 
always bear the same relative price to other com- 
modities, it would probably be advantageous. But 
as this is impossible, it is manifest, that that com- 
modity which is liable to the least fluctuation, is, 
by this circumstance, the best adapted to this pur- 
pose. 

6. As we sometimes desire to make small and 
sometimes large exchanges ; and, as the substance 
best adapted to the one is not always best adapted 
to the other, there is an advantage in employing two 

18* 



210 QUALITIES OF A CIRCULATING MEDIUM. 

metals for this purpose. For this reason, both sil- 
ver and gold are commonly employed in most civi- 
lized countries. For exchanges of less value than 
the smallest silver coin, copper is also generally 
used. And, if silver should ever become so abun- 
dant and cheap as to be too bulky to be used for 
effecting small exchanges, it would take the place 
of copper, and its place would be supplied by gold. 
Should gold become as abundant as silver, it would 
take the place of silver and some dearer metal, as 
platina, would be used in its stead. 

Inasmuch as gold and silver possess all the essen- 
tial qualities which are required in a circulating me- 
dium ; and as the condition of man so manifestly 
points to the necessity of some such instrument, it 
is not remarkable that they have so long and so uni- 
versally been adopted for this purpose. But it is 
always to be remembered, that we use them as a 
circulating medium, because toe want a circulating 
medium, and because they accomplish the purpose. 
We do not use them as a circulating medium, be- 
cause we see a stamp upon them, nor because gov- 
ernment has made them a legal tender ; but because 
we know that they represent a given amount of val- 
ue, and we therefore know, that we can exchange 
them for the same amount of value, whenever we 
please. If a bushel of wheat sell for a dollar, we 
know that it costs as much labor to produce a dollar 
at the mine and bring it to us, as to produce a 
bushel of wheat and bring it to us. Hence, we know 
that until some new and vastly more productive 
mines are discovered, this dollar cannot be produced 
for less labor, nor represent a less amount of value. 
And, as every body wants a dollar, and no one can 
furnish it at a less cost, we know that it will bring, 
in exchange, the same as we have given for it. 

We remarked, when speaking of exchangeable 
value, that the demand for any product, and, of 
course, its exchangeable value, was affected by the 
number of desires it would gratify. The greater the 



OF THE FUNCTIONS OF MONEY. 211 

number of desires which it will gratify, the greater 
the number of persons who will want it ; hence, 
they will overbid each other ; and, unless there be 
some improved, that is, cheaper method of produc- 
ing it, its exchangeable value will rise. This prin- 
ciple applies to whatever is used as money. The 
precious metals are used for ornament, for domestic 
utensils, and for coin. If the use of them for one 
of these purposes should be discontinued, the de- 
mand would be less ; and, as they are not liable to 
decay, their relative price would fall. 

Hence it is, that the amount of plate and utensils 
formed of the precious metals, in a country, is no 
criterion of its wealth, but frequently an indication 
of the reverse. Should commerce be unproductive, 
and exchanges diminish, and our intercourse with 
other nations be cut off, and we be reduced to the 
condition of Europe in the dark ages, there would 
be but little need of the precious metals as an in- 
strument of exchange, and their price would fall. 
Hence they would be melted down by the rich, into 
plate. And, on the other hand, when they have 
been used for plate, and the demand for them, and 
their consequent price have from any cause, subse- 
quently increased, the temptation to use them pro- 
ductively, is too great to allow them to be employed 
in this manner ; and the plate is melted into coin, 
and its place supplied with porcelain, or plated ware, 
or glass, or any other material of equal beauty, but 
of inferior costliness. 



SECTION III. 

OF THE FUNCTIONS OF MONEY. 

Let us now suppose metals to have been selected 
by the whole community as the circulating medium, 
and that they have been so divided and verified as 



212 OF THE FUNCTIONS OF MONEY. 

to be fitted to accomplish this purpose. We shall 
proceed to consider some of the functions which these 
metals would discharge. 

Money is the instrument for facilitating exchan- 
ges. This, when considered as money, is its only of- 
fice. By accomplishing this purpose in the least 
time, and at the least expense of labor, and trans- 
portation, and wear, it reduces the cost of every 
product, and thus adds immensely to the productive- 
ness of human industry. 

The principles on which it accomplishes this re- 
sult, have been already alluded to. They are briefly 
as follows : 

1, The cost or price of the money employed in 
every exchange, is equal to the cost or price of the 
article which is exchanged for it. If a barrel of 
flour in Lima be exchanged for ten ounces of silver, 
the cost of producing the flour, and of transporting 
it to Lima, is equal to the cost of producing the sil- 
ver and transporting it to the same place. If a bar- 
rel of flour in New York, be exchanged for seven 
ounces of silver, the cost and transportation of the 
one at the place of exchange, is equal to that of the 
other. If the flour merchant wishes for a thousand 
ounces of sil ver, he can procure it more cheaply by 
producing flour than he can by going to the mines 
of Mexico, and working it out from the ore. And, 
if the miner wishes for flour, he can procure it more 
cheaply by working in the mine, than by attempt- 
ing to raise wheat and manufacture flour on the 
mountains of Potosi. 

That this is so, is evident from the fact, that if the 
cost of the precious metals change, their exchangea- 
ble value varies, like that of any other product. 
Thus, if new and richer mines are opened, so that 
the cost of producing the precious metals is reduced, 
or, in other words, so that mining labor is more pro- 
ductive, the price of the precious metals falls. In 
such a case, we receive more silver for a day's work, 
for a bushel of wheat, for a pound of wool, or for 



OF THE FUNCTIONS OF MONEY. 213 

any other product. Money is thus rendered cheaper, 
on the same principle that when a wheat harvest is 
abundant, we receive a larger amount of wheat for 
a day's work, or for a pound of wool, than at other 
times. This is exemplified, in the great change of 
prices which occurred throughout the world after 
the discovery of the mines of South America. And, 
on the other hand, when the price of producing the 
precious metals is increased, their exchangeable val- 
ue rises. This has been the case, for some time past, 
in consequence of the civil wars of South America. 
Hence, there has been for some time past, a gradual 
rise in the price of the precious metals ; that is, the 
price of other things has fallen ; or, in general, if the 
cost of the production of the precious metals dimin- 
ishes, while that of the production of wheat remains 
the same, we shall receive more silver in exchange 
for a bushel of wheat. If the cost of producing an 
ounce of silver is increased while that of producing 
a bushel of wheat remains the same, we shall re- 
ceive less silver, in exchange for a bushel of wheat. 
That is, in exchanging products for the precious 
metals, as for any thing else, we exchange on the 
principle of labor for labor. 

Besides, the price of the precious metals, like that 
of any other commodity, is influenced, in short 
periods, by the fluctuations of supply and demand. 
There is, in any country, the course of whose in- 
dustry is not distorted by legislation, a supply of 
money, equal to the ordinary wants of the commu- 
nity, for the purposes of exchange. The price of 
both articles, is, in such a case, based upon the cost 
of the production of specie, compared with the cost 
of the production of the several articles for which it 
is exchanged. But, suppose that while this amount 
of specie remains the same, there should happen a 
year of universal productiveness in all the depart- 
ments of agricultural, manufacturing, and commer- 
cial industry. In this case, the number of exchang- 
es, and the amounts exchanged, would be propor- 



214 OF THE FUNCTIONS OF MONEY. 

tionally increased. The instrument with which ex- 
changes, were to be made, would be relatively 
scarce ; the demand for it would rise ; and there 
would be competition among the bidders for it. Hence, 
its exchangeable value would rise ; that is, we should 
give more wool, and wheat, and cotton, for an ounce 
of silver ; every thing would be cheap ; or, in other 
words, for an ounce of silver, we should procure a 
larger amount of other products ; as we always do, 
in a season of universal productiveness. And, on 
the contrary, if, while the ordinary amount of specie 
remained in the country, there occurred a very un- 
productive season, the number of exchanges would 
proportionally diminish, and there would be less de- 
mand for the instrument of exchange. There would 
arise a competition among the sellers, and the rela- 
tive price of money would fall ; we should give more 
money for every other article of necessity ; that is, 
every thing would be dear, as every one knows it is, 
in a season of scarcity.. 

We see, then, that the exchangeable value of 
money, is not derived from its shape or color, from 
the stamp of the mint, or from the enactments of the 
government; but that, like every thing else, it is 
based upon the cost of its production, varying, 
slightly, and for short periods, like every thing else, 
with the accidental fluctuations of supply and de- 
mand. And hence, the reason why a man exchan- 
ges a bushel of wheat for two ounces of silver, and a 
yard of broadcloth for six ounces, is, that it costs as 
much labor and capital to produce the one at. the 
place of exchange, as the other, and that no one can 
produce the given amount of silver, by mining, or 
in any other way, without expending the same 
amount of labor and capital, that the flour merchant 
or the manufacturer has expended in the creation of 
his products. 

As, then, every man, when he exchanges his pro- 
ducts for the precious metals, knows that he receives 
a commodity of as much cost ; that is, which rep- 



OF THE FUNCTIONS OF MONEY. 215 

resents the same amount of labor and capital, as that 
for which he exchanges it ; and, as he knows that 
every one wants this commodity ; that is, he can 
procure with it any thing which any one else has to 
exchange ; and, as no one who wants it, can pro- 
cure it on any better terms from any one else than 
from himself, every one is willing to exchange for 
money, and would rather exchange for it than for 
any thing else. As this feeling is universal, every 
one acts upon the same principle ; and hence, all 
exchanges are either made in money, or else are 
regulated by it. 

Hence, we see again, the great importance of 
adopting, as a circulating medium, a commodity 
which is not liable to fluctuation. If I exchange a 
bale of cotton for a hundred ounces of silver to-day, 
when both the articles represent the same amount 
of labor, I do it upon the supposition, that no one 
can furnish the silver, next week, on better terms 
than myself. But if, in a few days, the relative cost 
of silver should fall one half, every one would be 
able to furnish it at a less cost, and I should be un- 
derbidden ; that is, I should be obliged to sell my 
silver at half price ; that is, for half the amount of 
labor which I gave for it. 

II. But the question will naturally arise, if the 
value of the silver be equal to that of all the amounts 
exchanged for it, must not the value of the precious 
metals in the community, be equal to the value of 
all the other commodities '? 

We answer, this would be the case, if all exchan- 
ges were actually made in money, and actually made 
at the same instant. But the contrary is the fact. 

No man exchanges all his products at once, but 
exchanges them in successive portions. If two men 
possess one thousand dollars' worth of commodi- 
ties ; for instance, if A have wool and B have wheat, 
and they exchange the whole at once, and use mo- 
ney as the instrument, they must each possess also 
one thousand dollars with which to make the ex- 



216 OF THE FUNCTIONS OF MONEY. 

change ; that is, A must give B one thousand dol- 
lars for his wool, and vice versa. But, if they ex- 
change in portions of the value of ten dollars, at one 
hundred successive times, ten dollars in the posses- 
sion of each, and the same identical ten dollars, 
would accomplish the whole object. Now, as it is 
evident, that on any particular day, only a very 
small part of the whole amount of values in the pos- 
session of the community, is exchanged, it is evi- 
dent that only so much of the instrument of ex- 
change is necessary, as will accomplish the exchan- 
ges which the convenience of the community requires. 
No one supposes, because there is a million tons of 
merchandise in a city, that there must have been 
vehicles capable of carrying a million tons at once 
in order to bring it there. A locomotive, carrying 
fifty tons at once, if it went and returned frequently, 
would speedily accomplish the whole work. 

2. But this is not all. A large amount of exchan- 
ges is constantly made in kind. A buys wool of B, 
and B buys cloth of A. They both estimate the 
value of their product in money, because, as this is 
the usual medium of exchange, and that by which 
they are obliged to estimate cost, this method of es- 
timation is most convenient. Each charges the 
other with all that he purchases, at its value in sil- 
ver. At the close of the year, they adjust their ac- 
counts with each other. If A and B have both re- 
ceived of each other the same amount of value 
estimated in silver, the one account balances the 
other ; and thus, no money at all is required. If one 
have received more than the other, he pays merely 
the difference, either in silver, or else in his own 
product, at the option of his creditor. In this man- 
ner, a large proportion of the exchanges actually 
made, is conducted. In this manner, book-keeping 
tends greatly to diminish the amount of the circulat- 
ing medium necessary for the exchanges of a com- 
munity. 



OF THE FUNCTIONS OF MONEY. 217 

3. We see that this is still more emphatically the 
case, in respect to all the exchanges which take 
place between different districts, and different na- 
tions. Inasmuch as no society can gain possession 
of the objects of desire, except by its own labor, it 
must pay for what it receives in the product of the 
labor of others, with what it sends away, in the 
product of its own labor; that is to say, the exports 
of any country must be substantially equal to its 
imports. If, then, the transactions between two 
nations should be precisely equal, there would be no 
need of the transmission of any money at all be- 
tween them. If A send ten thousand dollars' worth 
of cotton to Liverpool, and import ten thousand dol- 
lars' worth of calicos from Manchester ; he author- 
izes the manufacturer in Manchester to receive in 
payment, the ten thousand dollars which are due to 
hirn from the merchant in Liverpool; and, thus, the 
whole matter is adjusted. If we receive from Eng- 
land, values to a larger amount than she wishes to 
receive in our own productions, we send some of our 
productions to a third country, and thus procure for 
England, what she wishes from the third country, 
in sufficient quantity to pay the residue. If we can 
get her products, in this manner, cheaper than we 
can make them ourselves, it is for our interest to do 
so. If they thus cost more than we could produce 
them for, ourselves, we shall relinquish the trade, 
and begin to manufacture them. In either case, 
there is no necessity for the use of money. And 
hence, in general, the only reason why money is 
sent from one country to another, in the transactions 
of commerce, is the same reason as that for which 
tea, or coffee, or cotton, or flour, is sent ; that is, be- 
cause it is so much cheaper in the country from 
which it is sent, than in that to which it is exported, 
that a larger value can be procured for it, than for 
the same value of any other commodity. In this 
case, it is for the advantage of both countries that 
it should be so exchanged. 
19 



218 OF THE FUNCTIONS OF MONEY. 

The amount of the circulating medium, in any 
one country, and, of course, in all countries, must, 
therefore, be very small, in proportion to the whole 
amount of the capital of a country. The actual 
proportion, perhaps, cannot he estimated with accu- 
racy. In Great Britain, writers on this subject have 
greatly varied. Some have estimated it at the 50th, 
and others, at the 127th part of the whole capital. 
The latter is, probably, by far the nearer to the 
truth. 

III. We see, then, that under given circumstan- 
ces, in any country, a given amount of specie will 
be required to effect its exchanges ; and that, that 
amount will depend upon the relative value of the 
precious metals with other things, and upon the num- 
ber and the facilities of exchange. These latter cir- 
cumstances remaining the same, the same value in 
specie will always be required, and no more. If 
specie, equal in value to ten millions bushels of wheat 
be required, no more in value can be used. If the 
amount be increased, its value will fall. If the 
amount be diminished, its value will rise. And this 
rise and fall will equally take place, whether the 
relative variation arise from a change in the cost of 
specie or of other products. Now, it is easy to see 
that these variations, if left alone, will regulate them- 
selves. 

We have seen, already, that the relative value of 
specie and of other products may vary. Let us sup- 
pose, in the first instance, that production, in any 
one year, is greatly increased, so that money in any 
country is dear, or, which is the same thing, that 
other products are cheap. Let us, for the sake of 
illustration, suppose, that in New York, flour is sold 
at four dollars per barrel. If, now, a merchant 
wished to import a cargo of wine from Bordeaux, 
since four dollars and a barrel of flour here, are at 
the same price, he can as cheaply send out the one 
as the other, with which to pay for his wine. But 
suppose that a barrel of flour will purchase more 



OF THE FUNCTIONS OF MONEY. 219 

wine in Bordeaux, than four dollars or four ounces 
of silver. He will then send flour, instead of silver ; 
and, as all other men in their senses will do the 
same, of course no specie will leave the country. On 
the contrary, a merchant, in London, wishing to pur- 
chase cotton in New York, will ascertain the rela- 
tive value of specie, and that of calico, or hardware, 
or iron ; and will send specie in payment for his cot- 
ton, whenever he finds that, by a given value of this 
export, he can import a greater amount of cotton, 
than by the same value of any other. Other mer- 
chants in other places will do the same, until the 
requisite amount of specie has flowed in, and it has 
become as abundant here, as in other countries. 
Thus, when specie is high in any country, it goes 
out no where, and comes in from every where. 

On the contrary : suppose an unproductive season 
to arise, and the relative quantity of specie in this 
country, to exceed the average in other countries. In 
this country, therefore, specie would be cheap ; that 
is, every thing else would be dear. The merchant, 
who wished to import a cargo of iron, would com- 
pare the prices of flour and of money. If flour was 
at fifteen dollars the barrel, that is, if he could pur- 
chase, at the same price, a barrel of flour and fifteen 
dollars, he would easily ascertain by which, in Rus- 
sia, he could procure the greatest amount of iron. 
If fifteen dollars would procure the most iron, he 
would send the dollars instead of the flour. This 
would be an advantage to him and to the country, 
because, by this mode of exchange, he receives the 
largest amount in return; and he procures it by 
means of that which is relatively the most abun- 
dant ; that is, which is manifestly the least needed. 
And a merchant in Liverpool, who knows the prices 
of our products, observing that he can exchange 
more profitably with us by receiving his payment in 
specie, at the relative prices which specie and pro- 
ducts sustain to each other, will receive his pay- 
ments in specie. Thus, by the sending abroad of 



220 OF THE FUNCTIONS OF MONEY. 

our specie, which we do not so much need, we shall 
be supplied with other products which we more 
need ; and hence, the relative value of specie to 
other products, Avill be again brought to an equili- 
brium. In other words, when specie is cheap in any 
country, it comes in from no where, and goes out 
every where. Thus, among countries between which 
there is frequent intercourse, and a free circulation 
of mercantile information, the price of the precious 
metals can never, for long periods, vary much from 
the medium rate, or, the rate which is fixed by na- 
ture, in the cost of their production. Hence we see, 
that a provision is made, founded on the self-interest 
of man, by which any great fluctuation in the ex- 
changeable value of the metals used as a circulating 
medium, is prevented. It is evident that the same 
consequences must ensue, from what cause soever 
the rise of prices may have taken place. Suppose 
that instead of a diminution of productions, there 
should occur an increase of the circulating medium, 
as for instance by very large issues of bank paper. 
The proportion between the circulating medium and 
the products to be exchanged would be disturbed. 
Money would be plenty and prices would rise. They 
might easily rise so high that products could not be 
exported as well as money. Specie would then be 
exported, and the bank notes would be recalled. 
Thus large issues and high prices, create, of neces- 
sity, mercantile distress and stagnation of business. 

IV. Hence, we also see what is a real scarcity, 
and what an abundance of money ; if, by the term 
■money, we understand merely a metallic circulating 
medium. 

Money, we have said, is the instrument by which 
we facilitate exchanges. Now, if we bear this in 
mind, it is easy to see what is a plenty and what a 
scarcity of this instrument. A power loom is an in- 
strument for facilitating the operation of transform- 
ing yarn into cloth. Power looms are too plentiful, 
when there are too many to perform the work that is 



OF THE FUNCTIONS OF MONEY. 221 

required to be done ; in this case, we can buy them 
cheap ; that is, we have to give for them a less 
amount of cotton cloth, or of wool, or of silver. 
Power looms are scarce, when there are not enough of 
them to perform the operations which are required ; 
in this case, we find it difficult to purchase them ; 
they are dear ; that is, we are obliged to give for 
them more than the ordinary amount of cotton, or of 
wool, or of silver. The case is the same with vehi- 
cles for transportation, or with any other instru- 
ments. 

Now money is just such an instrument. It is re- 
quired, to facilitate exchanges. To accomplish a 
given amount of exchange, a certain value in money 
is required, and, in ordinary times, this value al- 
ways exists. And, the exchanges remaining the 
same, we cannot employ for this purpose more than 
this amount of value. If a quantity equal to one 
thousand ounces of silver, or of one thousand bush- 
els of wheat, be required to perform the exchanges 
of a certain community, we cannot employ more than 
this amount of value. If we increase the quantity, 
we shall only decrease the value proportionally. If 
such a country be insulated from other countries, 
and we introduce into its circulation one thousand 
additional ounces of silver, equal to one thousand ad- 
ditional bushels of wheat, the value of the whole two 
thousand will be just equal to that of the one thou- 
sand ounces before ; that is, the value will not alter. 
If, on the other hand, from such a country thus insu- 
lated, we remove half the circulating medium, the 
remaining half will accomplish the purpose of the 
whole ; that is, it will double in value. This is ev- 
ident, because there are neither more nor less ex- 
changes to be made than before, and a variation in 
the instrument does not vary the amount of the 
work which the necessities of the community require 
to be done. If there be a given amount of yarn to 
be woven by twenty looms, the quantity will not be 
increased, by employing forty looms. And, if we 
19* 



222 OF THE FUNCTIONS OF MONEY. 

employ forty, we must work all of them but half the 
time; that is, each one will be of half its original 
value. If the work be doubled, we must work them 
by day and by night ; that is, each one will be worth 
twice as much as before. But, manifestly, the quan- 
tity of work to be done being given, it can never be 
affected by varying the quantity of the instruments 
by which it is accomplished. 

Now, suppose the exchanges, in a given commu- 
nity, be equal to fifty millions annually, and that 
there are required, to effect these exchanges, one 
million ounces of silver, and that this quantity of 
silver actually exists in its possession. Under these 
circumstances, there will be neither a plenty nor a 
scarcity of money, and it will be neither exported nor 
imported. But suppose, that, owing to a very pro- 
ductive harvest, or some rapid improvement in the 
productiveness of human labor, the amount of pro- 
ducts to be exchanged arises to seventy-five millions. 
Here will arise a scarcity of money ; there will be 
more exchanges than can be accomplished by the in- 
strument employed for effecting them. The price of 
money will rise ; in other words, the price of other 
commodities will fall, and every thing will be cheap ; 
that is, though you cannot purchase more wool, or 
butcher's meat, or cotton, with a barrel of flour, than 
you could last year, you can purchase more wool, or 
meat, or cotton, with the money which a barrel of 
flour cost last year. The same result will take place, 
if, while production continues as active, one half of 
the specie for any purpose, as the carrying on of a 
foreign war, were sent out of the country. In this 
case, as in the other, the price of money will rise ; 
that is, money will be dear, and every thing else 
will be cheap. 

But it is easy to see, on the principles already ex- 
plained, in what manner this difficulty will be met. 
In the first place, inasmuch as money prices are low- 
er than any others ; that is, as specie retains its for- 
mer value in all other places, but here, it is dearer ; 



OF THE FUNCTIONS OF MONEY. 223 

that is, will purchase more than any other commod- 
ity; other nations will send specie in exchange. This 
will be done, until the equilibrium is restored. And 
thus, this one nation shares the blessing of God's 
providence with its neighbors, since they receive its 
productions at a less price. In the second place, some- 
thing else, as, for instance, notes of hand, will be, 
in part, substituted for specie ; that is to say, as there 
is too much exchanging to be done in a given time 
by the instrument, at its utmost power of working, 
the work is spread over a longer time, and, instead 
of exchanging for specie now, the parties agree to 
exchange, but defer the payment for three or six 
months. Thus, when a'Weaver is unable to perform 
the work of his customers to-day, he promises to do 
it at a subsequent time; and, in the mean while, if 
his present instrument will not accomplish it, he pro- 
cures others that will. So, the merchant spreads the 
exchange of to-day over a larger time, and, in this 
time, is able to secure the instrument to accomplish 
the object. 

And thus we see, what is also an unusual plenti- 
fulness of money. If, while exchanges were at fif- 
ty millions, and one million ounces of silver were 
necessary to effect them, a mine were discovered, by 
which the quantity in circulation was doubled, the 
price of silver would fall, and we should give twice 
the usual price for commodities. Or, if while the 
silver remained the same, production, and, of course, 
exchange, diminished one half, the result would be 
the same. In this case, as we have already seen, 
specie would be sent in exchange to other countries, 
because it was less needed, and its place would be 
supplied by other productions which were more 
needed. 

Hence we see, that a plentifulness or a scarcity of 
money forms no occasion which calls for the interfer- 
ence of government, but that it is a matter, which, 
if left alone, will regulate itself. When money is 
really scarce, there is no need of prohibiting its ex- 
portation ; for no one will be so unwise as to export 



224 OF THE FUNCTIONS OF MONEY. 

it. When it is abundant, it is useless to prohibit its 
exportation, because it cannot be prevented ; and be- 
cause, if it could be prevented, by preventing it, we 
should deprive ourselves of the only method in our 
power of alleviating the evils which we suffer. The 
precious metals are relatively abundant in the states 
of South America ; that is, they need other kinds of 
capital more than they need this. How absurd would 
be the policy in them, to forbid their exportation, and 
thus deprive themselves of all the conveniences of 
other countries, nay, of the very means on which 
progress in civilization and the arts, and in the real 
accumulation of wealth, depends. 

Hence the notion, that the plentifulness or scarcity 
of money is an unfailing indication of the prosperity 
or of the adversity of a country, is, in the highest de- 
gree, fallacious. If the scarcity result from an in- 
creased productiveness of labor, it is an indication 
of prosperity ; just as the business of weaving is 
most prosperous, when the weavers have more work 
than they can do. If it result from a casual with- 
drawment of specie, it is an ambiguous indication, 
and its effect upon the country will depend upon the 
use which is made of that which is sent abroad. If 
it be employed in wars, or in other unproductive 
consumption, it is just so much loss ; and it matters 
not whether this amount of loss be in silver, or gold, 
or copper, or tea, or coffee, or cotton. If it be well 
invested, and return in the form of a profitable ad- 
dition to the capital of the country, it is just as much 
a source of gain, as though the same profit were 
made upon any other article. It is profitable for an 
individual to give one thousand dollars for what is 
worth fifteen hundred dollars, although, for a month 
afterwards, he be obliged to live somewhat more 
economically. And what is profitable for the indi- 
vidual, is profitable for the country. 

And so of the plentifulness of money. If a mine 
were discovered, by which the quantity of silver were 
doubled, and if this silver were produced at a fair 
profit to the miner, it would be an advantage, inas- 



OF THE FUNCTIONS OF MONEY. 225 

much as it would open a new and profitable method 
of employing both capital and labor. But, in this 
case, it could be of use only by its exportation, be- 
cause, as the number of exchanges in the country 
has not been increased, only the former amount of 
value is needed for a circulating medium, and to in- 
crease the quantity, will be only to diminish the value. 
By being sent abroad, capital, in other forms, sus- 
ceptible of change and increase of value, is imported; 
and thus, a country is made richer. If the plenti- 
fulness be the result of the diminution of exchanges, 
it is- an indication of adversity, because it shows that 
productiveness has fallen off, that the means of living 
are less abundant, and that capital is in haste to flee 
to more congenial climes. When this is the case, it 
generally springs from oppressive legislation. In this 
case, it is better for a government to remove the cause, 
than to aggravate the evil by additional and aggra- 
vated wrong. To prohibit the exportation of specie, 
in such a case, is not only to oppress a human being, 
but to forbid him the use of any means by which 
he shall escape from your oppression. 

Thus it follows, that no indication of the prosper- 
ity of a country can be derived, either from the plen- 
ty, or from the scarcity of money. The only sure 
indication of its economical prosperity, is the increase 
of its productiveness; that is, an increase of the sup- 
ply of objects of desire at the same, or at a dimin- 
ished amount of labor. The increase or diminution 
of the quantity of specie in circulation, is of impor- 
tance, only in so far as it indicates this increase of 
productiveness, and no farther. We estimate a man's 
prosperity, not by the amount of money in his pos- 
session, but by his power to command a larger or 
a smaller amount of the objects of desire. 

V. And hence, we may judge of the truth of that 
oft-repeated, but worse than puerile maxim, " It mat- 
ters not what becomes of property, so long as the 
money is in the country." If a million of dollars be 
lost in an unprofitable canal, or ten millions are sunk 



226 OF THE FUNCTIONS OF MONEY. 

by a profitless experiment in manufactures, we are 
told, that it is all of no consequence ; nobody is any 
poorer, because the money is in the country. That 
is, if a million dollars' worth of labor and capital 
have ceased to exist, we are no poorer than we were 
when this capital was existing, and yielding to its 
owners, and, of course, to the public, its annual pro- 
duction. If so, why not invest the whole capital in 
this manner, or why not pay men for throwing it all 
into the sea ? The money was merely the instru- 
ment which we used to effect its destruction ; and 
surely, we are but little better off, because the means 
of destruction remain. If a thief, in the night, had 
emptied your store-house with a wheelbarrow, you 
would not be very easily convinced you were no 
poorer, because he had left the wheelbarrow behind 
him. In the late disastrous fire in New York, it is 
said that fifteen millions of capital were consumed. 
I did not hear that any specie was destroyed, and 
yet, I think it would be difficult to show to the suf- 
ferers, that no harm was done, because the money 
was all in the country. Now, it matters not in what 
manner property is rendered valueless, whether by 
fire, or by folly. It matters not, whether fire does 
the work for nothing, or whether you hire workmen 
to do it at heavy wages. It matters not, whether 
the fifteen millions be turned into ashes, and thus 
rendered valueless, or whether it be turned into a 
canal, which is equally valueless. If your store and 
goods are burned up, you would give away the ashes. 
If it be turned into a canal, which you would be 
equally willing to give away, in what respect are 
you better off in the one case, than in the other? 

VI. We have already seen, that the natural price 
for the precious metals is the cost of their production, 
and that a given amount of them will be required 
for effecting the exchanges of the community. Sup- 
pose, now, these metals to be indestructible, and un- 
changed in quantity, and the quantity of other pro- 
ductions annually created, to be, for fifty years, the 



OF THE FUNCTIONS OF MONEY. 227 

same; it is evident that specie and other products 
would, at the end of that time, bear the same ratio to 
each other, as at present ; that is, the money prices 
of all commodities would remain unchanged. But nei- 
ther of these is the case. In the first place, the pro- 
ductions of the earth annually increase ; this is evi- 
dent, from the increase of its number of inhabitants. 
And, on the other hand, the precious metals are an- 
nually produced, in large quantities, from the mines. 
But they are also destructible, and suffer slightly 
from wear and tear, when used as coin ; and they 
are also rapidly consumed in the purposes of the 
arts. Now, if these two causes exactly counterbal- 
anced each other ; that is, if the supply of the pre- 
cious metals were precisely such as to correspond to 
the increase of productiveness, and to the amount 
consumed in the arts, prices would still remain as 
before. If the increase of the metals were not suf- 
ficient to supply the increased demand arising from 
increased productiveness, and other causes, the price 
of the metals would rise ; that is, the price of other 
things would fall. And if, on the other hand, the 
increase of the metals were greater than the increase 
of productiveness, their price would fall ; that is, 
the price of other things would rise. Now it ap- 
pears that, previously to the discovery of America, 
for several centuries, there was no great change 
in the relative value of specie and that of other 
commodities. That event, however, by throwing 
upon the world an immense amount of the precious 
metals, effected at once, a great change in their 
value. As they are but slowly consumed, this dim- 
inution of their value continued for some time to in- 
crease. This depreciation was still more advanced, 
by the troubled condition of Europe, which preven- 
ted the developement of her productive energies ; 
and by the slow progress which she was making in 
the arts of civilization. But, of late, in consequence 
of the introduction of machinery and the division 
of labor, and of improvements in government and 



228 OF THE FUNCTIONS OF MONEY. 

legislation, the increase of productiveness has more 
than kept pace with the increased supply of the pre- 
cious metals. Hence, of late, prices have fallen ; 
and this has been specially the case, in consequence 
of the peace of the world, for the last twenty years, 
since the fall of Napoleon. 

These remarks are illustrated by the following 
facts : 

The quantity of wheat, in France, which was ex- 
changed in 1520, for 512 grains of silver, was ex- 
changed in 1536, for 1063 grains ; in 1602, for 2060 
grains ; and, in 1789, for 2012 grains ; thus designat- 
ing a variation in the prices of silver, according to 
the principles which we have suggested. 

Now, as the progress of geology, mining and min- 
eralogy, will probably greatly increase the produc- 
tion of the precious metals in future, it is probable 
that their price will continue to fall. Hence, when 
indefinite leases are given, it is wise never to fix a 
rent at a given amount of silver per annum, but at 
a given amount of some other less variable product, 
such as wheat. Or it would, perhaps, be better still, 
to average the rent at definite periods, on terms 
which should be equitable, and of which neither par- 
ty could take any advantage. The oldest profes- 
sorships in Oxford, were established upon a salary 
of £40 sterling a year. This was, probably, then 
sufficient to support a teacher handsomely ; and was 
equal to the rent of an ordinary farm. If a farm 
had been leased then, at £40 per year, perpetually, 
the rent, at this time, would have been but a very 
small part of its value.* 

* It is difficult to ascertain, with any degree of accuracy, the an- 
nual supply and the annual consumption of the precious metals. 
M'Culloch, a high authority, estimates the supply from the Ameri- 
can, European, and Russo-Asiatic mines, at six millions pounds 
sterling per annum, and the consumption, for the purposes of the 
arts, at nearly four millions ; leaving somewhat more than two mil- 
lions pounds sterling of silver and gold, for the purposes of coining. 
Dictionary of Commerce: Art.," Precious Metals." 



AGENCY OF GOVERNMENT. 229 



SECTION IV. 

OF THE AGENCY OF GOVERNMENT, IN RESPECT TO A 
CIRCULATING MEDIUM. 

We have, thus far, said nothing concerning the 
agency of government, in respect to a circulating 
medium. The reason is, that, thus far, the necessi- 
ty for the exertion of such agency has not been ap- 
parent. Two men use money, in exchange, for the 
same reason that a man uses a hammer for the pur- 
pose of driving a nail ; because, he thus economi- 
zes both time and labor. All men use money in ex- 
changes, for the same reason that all men use ham- 
mers for the purpose of driving nails ; because they 
all find that they thus save time and labor. 

Had governments no agency at all in the matter, 
the precious metals, as a circulating medium, might 
have been both introduced, and universally em- 
ployed ; and they would have been so introduced and 
employed, as they actually were, in the time of Abra- 
ham. Hence, as we have before remarked, a circu- 
lating medium derives its use, as money, from its 
inherent fitness, and the desire of men so to employ 
it, and not from any agency of government in estab- 
lishing it. While, however, this is the case, and 
while this is always to be borne in mind, there is yet 
some agency, which society, or government, which 
is its agent, may exert, that shall increase the con- 
venience of whatever may be used as a circulating 
medium. 

This agency has reference to two circumstances. 

1. Whenever any substance has been found uni- 
versally adapted to the purposes of exchange, it is 
important that it should be used by all men, unless 
something to the contrary be specified by particular 
contract. If I owe a man for a hat, and when I 
come to pay him, he demand payment, not in silver, 
but in beaver skins, I may not be able to procure 
20 



230 AGENCY OF GOVERNMENT. 

them, and he may hold me his debtor, and imprison 
me accordingly. If I, instead of paying him in sil- 
ver, offer him leather, and declare that I will pay 
him in nothing else, he will be defrauded out of his 
due. Now, to prevent disputes without end, it is 
desirable that something be fixed upon, of which the 
tender shall discharge for ever the debtor's obligation. 
And as this would most naturally and most justly be 
the substance which all men have chosen for a cir- 
culating medium, this is most properly chosen. 
Hence, society or government have a right to estab- 
lish the precious metals as a legal tender ; that is, to 
enact, that if a man declare that I owe him ten dol- 
lars, and I offer him ten silver dollars, if he choose 
not to receive them, I am under no obligation to give 
myself any more trouble about it. The tender, on my 
part, is a full release. I am under obligation to offer 
nothing else ; and he has no right to demand any 
thing else. Nor is there, in this, any oppression. 
If a man wish to be paid in something besides mo- 
ney, he can always specify it in the contract; and 
thus his object can be accomplished. The whole 
effect of such a law is, to prevent disputes, and to 
enact what shall be a full and valid release from 
obligation, when nothing specific has been agreed 
upon. 

But, secondly : If any substance be used as a cir- 
culating medium, it is evident that its utility will be 
greatly increased by several circumstances. Of these, 
the principal are : — 

1. That it be of uniform purity. Were it other- 
wise, every piece must be tested by chemical analy- 
sis. This would be, of course, impossible ; and 
hence its utility would be greatly diminished. 

2. That it be divided into portions of such a size, 
as shall be most convenient for the purposes of ex- 
change. Were coins a foot in diameter, or as small 
as the head of a pin, they would in either case be 
almost useless. The former could be used only in 
large exchanges ; the latter would be so small as to 



AGENCY OF GOVERNMENT. 231 

be frequently lost, and of so small a value as to con- 
sume a great deal of time in counting them. 

3. That it should be so prepared, that each piece 
shall, on inspection, indicate its value, and also in- 
dicate that no change has been effected in that value, 
by design. To give to the precious metals these 
qualifications, is the intention of coming. 

But it is evident, from a moment's consideration, 
that the preparation of coin in this manner, for the 
public use, could never be safely entrusted to indi- 
viduals. The temptations to dishonesty are too great 
for ordinary human virtue. It is evident, that such 
a work should be executed by those, whose interest 
would lead them to perform it with the greatest pos- 
sible fidelity. Hence it is, that individuals have, in 
all civilized countries, surrendered the right of coin- 
ing money to the whole society, that is, to govern- 
ment ; and governments have executed it by means 
of agents appointed for that purpose. These agents 
should always be placed under such circumstances, 
that their interest is strongly on the side of honesty ; 
and the supervision over them should be of such a 
nature, that any failure either of skill or of integri- 
ty, could be easily detected. 

Such are the limits, within which the powers of 
government, in respect to money, are restricted ; and 
such is the reason, for which this power is conferred. 
Of the manner in which a government should exe- 
cute this trust, it is only necessary to add a few re- 
marks. 

1. It is the business of the government to regu- 
late the purity of money. Inasmuch, however, as 
this whole power is conferred for the public conve- 
nience, the exercise of this power should never be on 
the ground of arbitrary enactment, but of public 
convenience. Thus, as money is liable to loss from 
wear, and as this loss is rendered less by the ad- 
dition of a small portion of alloy, which renders it 
harder ; and, also, as the purification of the precious 
metals from all alloy, would be a process of great 



232 AGENCY OF GOVERNMENT. 

and useless expense, it is for the convenience of all 
parties, that some portion of alloy should be allowed 
to remain when the metal is prepared for coining. 
The degree of this adulteration should, however, be 
fixed by law, and should thus be publicly known, 
and should be invariable. 

2. The government should regulate the size and 
form of the coin. 

The size of the pieces should be such, as shall 
best adapt them to the purposes of exchange. 

Their relative proportions to each other, should be 
such as to adapt them most conveniently to the pur- 
poses of enumeration. On this account, the decimal 
system, adopted by the United States, is probably 
preferable to any other. The size having been once 
fixed upon, it should remain invariable. 

In respect to the form of money, we may add : 

1. It should be adapted to convenience for count- 
ing. On this account, flat coins are always pre- 
ferred. 

2. It should present the least possible surface to 
friction. On this account, the thicker the pieces 
are, the better, provided they be not inconvenient for 
piling. 

3. The whole surface, or so much of it as is pos- 
sible, should be so ornamented, that if any of the 
metal should be feloniously filed, or worn away, it 
may easily be discovered. For the same reason, the 
edges should always be milled. 

4. To reduce the amount of friction, as much as 
possible, the rim of the edge should be so raised as 
to protect the face. 

It would be of advantage, also, if the amount of 
pure metal in every piece were always stamped upon 
its face. This would be an additional check against 
any interference on the part of government with the 
purity or the weight of coin. It would also allow 
persons entering into contracts, to make them either 
in weight or in denomination, as they choose; and 
thus, give them additional means of protection 



AGENCY OF GOVERNMENT. 233 

against interference of this sort, even if it were at- 
tempted. 

Inasmuch as a piece of metal coined is worth 
more than a piece uncoined ; that is, as it has ad- 
ditional value, derived from the means of verifica- 
tion conferred upon it ; as this additional value is 
the property of the owner, and as the conferring of 
it is a costly operation, it is right that the owner 
should pay for it. Were nothing charged for it, as 
it is worth more when coined than when uncoined, 
when it could not profitably he sent abroad in one 
form, it might be so sent in the other form ; hence, 
when it could not be sent in bullion, it might be 
coined, and sent away in money. Hence, there 
would be, in such a case, a premium given to its ex- 
portation. But, on the other hand, the charge for 
this operation should be just sufficient to defray the 
expenses of the work. If more than this is charged, 
so that coining would be a profitable business, it 
would soon be done by private individuals, for gain ; 
and the country would be flooded with coin made in 
other countries, and be thus liable to great impo- 
sition. The government would thus soon lose the 
business. If it be done at the lowest practicable 
price, as no one can make any thing by the opera- 
tion, all temptation to private coining is taken 
away. 

Inasmuch as money is liable to continual wear 
from friction, and as it is thus steadily, though slow- 
ly, diminished in value, it at last becomes so much 
worn, as to be unfit for circulation ; because its im- 
pression is effaced, and also because it contains much 
less than the standard quantity of metal. When it 
becomes thus unfit for circulation, on whom is the 
loss to fall ; on the last holder, or on the whole com- 
munity 1 Doubtless, on the latter. The last holder 
has derived no more benefit from it than any one of 
the thousand holders, each one of whom has con- 
tributed, by using it, to depreciate its value ; and 
there is no reason why he, in preference to any other, 
20* 



234 AGENCY OF GOVERNMENT. 

should bear the whole loss. In other words, worn- 
out coin should always be received at the mint, at 
par, and exchanged for new. This remark, how- 
ever, should apply only to worn-out coin ; and not 
to coin which has been fraudulently diminished in 
value. Pierced or clipped coin, should not be ex- 
changed. This will tend to prevent every one from 
receiving it ; and will thus tend to keep it in the 
hands of those who have robbed it of a part of its 
value. 

If such be the agency which a government is 
called upon to exert, in respect to a circulating me- 
dium, it will be seen that it has no right to interfere 
in any other respects. Hence, for instance : 

1. It has no right to prevent the exportation or im- 
portation of specie. This, like any other commodi- 
ty, if let alone, will regulate itself. Specie will never 
be sent abroad, unless it be for the advantage of the 
country that it should be so sent abroad. The ac- 
tual monetary condition of a country cannot be af- 
fected by arbitrary acts. Besides, a man has the 
same right over whatever silver or gold he may pos- 
sess, as he hasover cotton, or wool, or any thing else; 
and he has just the same right to exchange it with 
any one, and for any thing, as he may think for his 
advantage. 

2. A government has no right, arbitrarily, to alter 
the value of money ; that is, to say that a dollar 
shall contain either more or less silver than it now 
contains. To do so, is, of necessity, to interfere with 
private contracts ; and thus to expose one half of 
the community, a prey to the dishonesty of the other 
half. If A have promised to pay B, one thousand 
dollars; meaning by this, one thousand ounces of 
silver; and the government enact that the dollar 
shall hereafter contain only half an ounce of silver, 
and oblige B to receive half ounces, instead of 
ounces; they defraud him of precisely half his due. 
This will be the case, not only with B, but with all 
the creditors in the whole community. It is just the 



AGENCY OF GOVERNMENT. 235 

same interference, as though they should enact, that 
a debt of one thousand bushels of wheat should be 
paid with five hundred bushels ; or, that a debt of a 
yard of broadcloth should be paid with half a yard. 

If, however, the coin, by common consent, is found 
to need a [change of any kind, and the public con- 
venience actually require it, it is to be done by com- 
mon consent, after sufficient notice of the change 
has been given, and be so done, that all contracts 
existing at the time, be left inviolate. If the amount 
of silver in a dollar, in this country, should ever be 
changed, it should be effected by exchanging, at the 
mint, the present dollar, at its value in silver, for a 
new dollar, at its value in silver ; so that all con- 
tracts now in existence, should be fulfilled according 
to the terms of the agreement. A still better method 
would probably be, to issue a new coin, with another 
name. This, I believe, has lately been done in Great 
Britain. Instead of the guinea, of twenty-one shil- 
lings, a gold coin, of twenty shillings, has been in- 
troduced, called a sovereign. 

3. A government, I think, has no right to fix the 
relative value between the precious metals. This 
cannot be done, in fact, because the relative value is 
liable to continual fluctuation. If both are a legal 
tender, the debtor has the right of paying in that 
which he prefers ; and, as he may be always ex- 
pected to choose to pay in the cheaper, he may thus 
frequently defraud his creditor, to the amount of the 
fluctuation. It is better to have but one a legal 
tender, and leave the other, as any other matter of 
merchandise, to be exchanged by special contract be- 
tween the parties. In this respect, I think the sys- 
tem of Great Britain preferable to our own. Gold, 
as has been remarked, is there the only legal tender, 
for all sums above twenty shillings ; and silver, for 
all sums below that amount. Hence, whenever con- 
tracts are made, their amount determines the metal, 
in which the payment is to be made. 



236 AGENCY OF GOVERNMENT. 

Mr. Condy Raguet, in his last treatise on currency 
and banking, has, we think, conclusively shown, 
that the present law fixing the relative values of sil- 
ver and gold in this country, is in every respect in- 
jurious. Its tendency, clearly, is, to drive the one 
or the other metal out of the country, and thus to 
diminish instead of increasing the amount of specie 
in circulation. And, besides, inasmuch as the legal 
tender in Great Britain is gold, it would be much 
better that ours should be silver. A scarcity of spe- 
cie in one country would thus be less felt in the other. 
This is a consideration of great moment where two 
nations are so closely connected as this and Great 
Britain. As we are at present situated, the least 
variation in one country is immediately felt in the 
other. 



CHAPTER THIRD. 

OF A CIRCULATION BY MEANS OF A PAPER CURRENCY. 



SECTION I. 

OF THE NATURE OF BANKS IN GENERAL. 



BANKS OF DEPOSIT AND EXCHANGE. 

We have already treated somewhat at large upon 
the subject of division of labor ; the circumstances 
in our constitution by which it is introduced ; and 
the benefits which result to every class of the com- 
munity from its introduction. We have also seen, 
that division of labor is always carried on most suc- 
cessfully, when it is united with the use of some 
natural agent. Thus, in the manufacture of cotton, 
by the union of steam or water power and machin- 
ery, with division of labor, production is greatly in- 
creased ; and every class of society is enriched. And 
we have also seen, that the one could not be carried 
to great perfection, without the employment of the 
other ; and also that, in the nature of things, the one 
actually suggests and renders necessary the employ- 
ment of the other. 

Now all these remarks apply, with the same force, 
to the labor of exchange, as to any other labor. 
From the necessities of society, it is evident that a 
very large portion of its labor must be the labor of 
exchange. The increase of this labor would na- 



23S BANKS OF DEPOSIT AND EXCHANGE. 

turally lead to the discovery of some natural agent, 
by which it might be executed at less expense of 
time and industry. At first, the rudest instruments, 
such as cattle, and the baser metals, were employed. 
These gradually gave place to the more perfect in- 
struments, gold and silver. As the use of this more 
productive instrument increased very greatly the 
number of exchanges, and thus required more la- 
borers, instead of fewer, in this department of in- 
dustry, it was natural, in the next place, that divi- 
sions of labor should be introduced, in order to use the 
instrument, or natural agent, with the greatest de- 
gree of success ; and also to accomplish, with a given 
amount of industry, the greatest amount of ex- 
changes. 

Division of labor, in this department of industry, 
as in every other, has proceeded from rude begin- 
nings, to greater and greater perfection. At first, its 
benefits were but imperfectly appreciated. By ex- 
periment, they were more and more unfolded ; and 
now, although its principles may not be generally 
understood, yet, it is coming into very general use 
throughout the civilized world. Instead of banks in 
none but the great marts of trade, as was the case 
a century or two ago, we find them, in free states, 
employed in towns and villages, over the whole com- 
munity ; and, when judiciously administered, their 
effects are the same upon the small, as upon the 
great sections of the community. 

The word bank, is said to be of Italian origin. 
" In the infancy of European commerce, the Jews in 
Italy were wont to assemble in the market places of 
the principal towns, seated on benches, ready to lend 
money ; and the term bank, is derived from the Ital- 
ian word banco, a bench." When any of these mo- 
ney-lenders failed, his bench was broken. Hence, 
the origin of the word bankrupt. 

1. We have shown how very great, in a civilized 
country, must be the amount of exchanges. We 
have also shown, that these exchanges are greatly 



BANKS OF DEPOSIT AND EXCHANGE. 239 

facilitated, by means of the use of a metallic curren- 
cy. But it is evident, that were the labor of exchanges 
to remain at the point to which we have carried it, 
every individual engaged in this business, would be 
obliged to keep constantly on hand, a great amount 
of silver and gold, in order to effect his exchanges. 
This would very greatly limit the number of ex- 
changes which he could effect, with a given amount 
of capital. If a merchant were worth one hundred 
thousand dollars, and were obliged to keep constant- 
ly on hand, fifty thousand dollars' worth of gold 
and silver, he could effect exchanges only with fifty 
thousand, and must keep fifty thousand dollars con- 
stantly idle. If, by any means, he could dimmish 
this amount, by so much as he diminished it, could 
he increase his amount of exchanges, and, of course, 
effect them more cheaply. 

2. Were men thus to keep on hand so large an 
amount of the precious metals, and actually to make 
their exchanges by means of metallic transfer, much 
time would be consumed in transportation. A large 
number of persons must be employed constantly, in 
no other business than in carrying silver and gold 
from one merchant to another, in the same place, 
and between the merchants in different places. 

3. Were exchanges to be made directly, through 
the medium of money, it is evident that every pay- 
ment must, of necessity, be counted by both parties. 
This, in large payments, would consume much time, 
and cause great wear and tear of the coin. Were 
a large mercantile house, which transacts exchanges 
to the amount of from ten, to one hundred thousand 
dollars' worth in a day, obliged to count all the 
money paid and received, every one must see that 
more than thrice the present number of agents must 
be employed ; and thus, the expenses of the estab- 
lishment would be greatly increased. The effect of 
this additional expense of labor, would be very great- 
ly to increase the cost of exchanges; that is, the 
price of products. 



240 BANKS OF DEPOSIT AND EXCHANGE. 

4. The precious metals are small in bulk, and there- 
fore, are very liable to be stolen. The pieces of the 
same denomination being of precisely the same form 
and impression ; if stolen, they cannot be identified. 
Hence, more than usual care is necessary, in order 
to secure them against robbery. Were every indi- 
vidual, therefore, to keep on his premises, the whole 
amount of the precious metals necessary to effect his 
exchanges, every one would be obliged to guard his 
property with increased vigilance, both by day and 
by night.* He would be his own banker, and must 
add to his present expenses, all those expenses nec- 
essary to the security of a bank. 

But let us now see, by how simple an arrangement 
all these difficulties might be obviated. Suppose 
this labor were divided, and that all the merchants 
in a town, instead of being every one his own bank- 
er, agreed together to employ a single person to be- 
come the banker for all of them. Let us suppose 
this person to procure a safe repository for all the 
specie in the neighborhood, and to become responsi- 
ble for its safe keeping. Suppose, also, that these 
merchants, instead of keeping their money themselves, 
all lodged it with him, and that he opened an ac- 
count with each one, crediting him with whatever 
he deposited, and debiting him to all that he with- 
drew ; and that every one was at liberty to withdraw, 
at any moment he chose. 

It is manifest that, in such a case, if A owed B 
one thousand dollars, he would not send to the bank 
and withdraw the money for B to replace it again, 
but would give to B an order for one thousand dollars, 
which B would present to the banker, and the one 
thousand dollars would be withdrawn from A's ac- 
count, and added to that of B. If B owed C, he 
would do the same. C would do the same to D, and 
perhaps D would owe A, and would pay him in the 

'It is appropriate here to remark, that the establishment of banks 
lias, on this account, greatly diminished the freiuiency of the crimes 
of house-breaking and highway robbery. 



BANKS OF DEPOSIT AND EXCHANGE. 241 

same manner. At the close of the day, their bank 
accounts would stand just as they were at the begin- 
ning ; and yet, there have been four payments made 
and received, of one thousand dollars each. Yet, 
not one cent of the specie has been touched. Not a 
dollar of it has been counted. It has been all done 
by a few entries made on the books of the bank, and 
done in a very few minutes. In this manner the 
writing of a few lines saves all the labor of repeated 
transportation, of as frequent counting of coin, and 
also all the cost of wear which must arise from ev- 
ery such operation. Besides, inasmuch as no more 
vigilance is necessary to secure from depredation the 
whole sum of specie than any one part of it, it is 
evident that great additional labor is saved in this 
respect also. 

But this is not all. We see, from the case above, 
that at the close of the day, although each one had 
made a large payment, yet every one stood with the 
bank, just as he did at the beginning. Though this 
will not be so in every case, yet it is evident that, 
supposing no great change in the value of products, 
such must be the general result. The reason is evi- 
dent. Every man must sell as much as he buys, and 
he evidently must buy as much as he sells. When 
he buys, he pays money ; when he sells, he receives 
money ; that is, the money which every man re- 
ceives, must be as much as he pays away, with the 
addition of the profit which he has made by the ope- 
ration. So that, if all the exchanges of one hun- 
dred men were made among themselves, and all pur- 
chases paid for in cash, and their accounts were all 
kept at one banking-house, these accounts must all, 
at the close of every day, very nearly balance each 
other. Under these circumstances, it would very 
soon appear, that it was unnecessary to have so large 
a sum in deposit, in order to meet the emergencies 
of exchange. Instead of being obliged to have 
enough there to pay for every purchase, it would be 
sufficient, if every man had enough to meet any ac- 
21 



242 BANKS OF DEPOSIT AND EXCHANGE. 

cidental variation between his purchases and sales. 
Thus, each one would he enabled to withdraw a 
large portion of his deposit, and employ it in active 
business. In this manner, the amount of active cap- 
ital in a society would be greatly increased ; inas- 
much as, he who was formerly obliged to keep on 
hand, and out of employment, ten thousand dollars, 
might now accomplish the same purpose with one 
thousand dollars ; and he might employ the remain- 
der in active exchanges. Thus would all exchan- 
ges be cheaper, products would be at a lower price, 
and the whole community would be richer. 

Suppose, now, the business of this society to be- 
come so extensive, that one banker is unable to trans- 
act the operation of all these transfers, and another 
is also employed, who opens another banking-house 
on the same principles. If we bear in mind the fact, 
that the purchases and sales must, in the end, be 
equal to each other ; that is, that every man receives 
as much money as he pays away, the transactions of 
the day must, as before, equalize each other. If both 
parties transact their business at the same bank, this, 
as it has been just shown, will be the case. If they 
transact their business at different banks, it will but 
slightly differ. A pays B in a draft on the first bank, 
which B deposits in the second bank. B pays C in 
a draft on the second bank, which C deposits in the 
first bank. At the close of the day, these banks ex- 
change drafts, and thus, without any labor or count- 
ing, or transportation, by merely writing a few words 
in a bank ledger, the whole transaction is completed. 
It is hardly possible to find a case, in which, by the 
division of labor, a greater increase of productive- 
ness is given to human industry. 

Now the case will be the same, if we consider the 
intercourse between different cities and different coun- 
tries or in different countries. It is to be borne in mind, 
that the sales and purchasesof every society, as well 
as of every individual, must be, substantially, equal. 
The reason is obvious; for a man can buy only as 



BANKS OF DEPOSIT AND EXCHANGE. 243 

much as he can pay for ; and, as much as he can pay 
for, he will generally buy ; and, if he buy skillfully, 
he will lose nothing by the exchange. In other words, 
all exchange is ultimately and substantially ex- 
change in kind. And, as the things exchanged are, 
at the place of exchange, of equal value, the pur- 
chases and sales must be equal to each other. If 
Boston buy ten million dollars' Avorth of New York, 
it must send ten million dollars' worth with which to 
pay for it. If both parties made these exchanges 
by means of money, not only the goods, but also the 
money, must be transported to and fro, at every ex- 
change. If, however, banks be established in both 
places, and both parties transacted the payments by 
means of their agency, all this would be avoided. 
Thus, for instance, suppose A, in Boston sells toB,in 
New York, ten thousand dollars' worth of domestic 
cottons ; he is entitled to draw on B for that amount ; 
that is, to order him to pay it, to whomsoever he 
will. Again : Suppose C, In New York, sells to D, 
in Boston, ten thousand dollars' worth of French 
silks ; he, in like manner, is authorized to draw on 
D, for that sum. D, in Boston, may buy of A his 
draft on B, which he sends, to his creditor, C. C 
presents it to B, who pays it at sight ; that is, D 
pays A, and B pays C ; and thus these debts mu- 
tually cancel each other, and all the labor consists 
in writing these drafts, sending them by post, and 
making the necessary entries. 

We see, therefore, that if the exchanges between 
two places were equal, the whole business of pay- 
ment might be made without the transfer of any 
specie whatever. 

But suppose the business between two places were 
not equal ; that is, suppose that Boston purchased of 
New York more than it sold to that place ; suppose, 
for instance, that Boston purchased of New York 
ten million dollars' worth, and sold to that place 
only five million dollars' worth. In this case, one 
half the payments would be made in productions. 



244 BANKS OF DEPOSIT AND EXCHANGE. 

in the manner we have already suggested. The 
remaining five millions must, however, be provided 
for, in some other way. One obvious way would be, 
to send this remainder in specie. But, it will be 
asked, how is this five millions of specie to be pro- 
vided ? We answer, by sending the five millions of 
products, which would otherwise have been sent to 
New York, to some other place, where specie can be 
had at the cheapest rate ; and thus paying for what 
we have purchased at New York, by two exchan- 
ges instead of one. This is one method. Another 
method would be, for Boston to send five millions of 
her domestic products to some other market, say to 
the West Indies, and exchange it for some other pro- 
duct, say coffee, or sugar ; and remit these to New 
York, to pay the balance of her debt. . This would 
be sold, the proceeds deposited in New York, and he 
who owed the New York merchant would purchase 
a draft in Boston, of him who had imported the cof- 
fee or sugar ; and thus the debt would be liquidated. 
Now, it is manifest, that it is, to Boston, of no 
consequence in Avhich way she pays this debt; 
whether by sending directly to New York ten mil- 
lions of her products ; by sending five millions to 
New York and five millions to South America in 
exchange for specie ; or by sending five millions to 
New York and five millions to Cuba in exchange for 
coffee and sugar. In either case, she pays but ten 
millions ; and the way in which it is paid is a mat- 
ter of indifference. And it is, also, obvious in which 
manner Boston will choose to pay her debt. Every 
one who has a debt to pay, will pay it in that which 
Avill liquidate it at the least expense to himself. If 
five millions of specie can be procured by four and 
a half millions- of other products, it will be best to 
pay the debt in specie. If sugar and coffee worth 
five millions in New York, can be purchased by four 
and a half millions' worth in Boston, she will choose 
to import coffee and sugar in payment. And thus, 
the account will be adjusted, in every case, accord- 



BANKS^ OF DEPOSIT AND EXCHANGE. 245 

ing to the interests and conveniences of the respec- 
tive parties ; that is, of the whole community. 

This is the case, if we take into consideration two 
trading places in the same country. But the case is 
the same with the trading cities over the whole world. 
And by thus allowing every thing to regulate itself, 
the whole business of exchange is adjusted. 

Suppose, for instance, that Great Britain has pur- 
chased of us more than we receive in return. There 
will then be a portion of her debt unpaid ; and 
there will then be a demand for something where- 
with to pay it. In this case, drafts on America will 
rise ; that is, those who have payments to make will 
overbid each other, and drafts will rise in price. In 
this case, a French merchant, who has sent a cargo 
of silks to America, will find that he can get more 
for it, by selling in London drafts on his correspon- 
dent in New York, than by importing American pro- 
duce. In this case, he will sell to the London mer- 
chant drafts to the whole amount of his cargo ; that 
is, England pays France, for sending to America 
sufficient produce to pay the deficiency which she is 
unable, profitably, to supply from her own produc- 
tions. In this manner, the deficiency of the exports 
of the first country to the second, is made up by the 
excesses of a third ; and, as every one receives as 
much as he pays out, and imports, on the whole, as 
much as he exports, by free communication among 
themselves, the balance is speedily adjusted. 

Hence, bills of exchange, or orders of payment for 
goods already delivered at any particular place, be- 
come an article of merchandise, as much as any 
thing else. This being the case, it is of importance 
that some persons should devote themselves to this 
branch of labor. By these means, both parties know 
how they can be best accommodated. The sellers 
know where to sell, and the buyers where to pur- 
chase. For the transaction of this business banks 
have great facilities, and hence, they are frequently 
thus employed. Almost all our domestic, and much 
21* 



246 BANKS OF DEPOSIT AND EXCHANGE. 

of our foreign exchange is negotiated at present by 
means of banks. They act as brokers by bringing 
buyers and sellers together, and by reason of their 
communication with each other, they are enabled to 
transact the business of exchange of drafts with 
great security and at little expense. 

Such, I suppose to be some of the principal func- 
tions of banks, as offices of deposit. They, by means 
of division of labor, diminish the amount of the 
circulating medium necessary to carry on the ex- 
changes of a country ; they greatly diminish the la- 
bor of transportation and of counting money in the 
same place, and almost remove the necessity of 
transporting it between different places. 

The Bank of Amsterdam was purely a bank of 
deposit. It received the specie of the merchants of 
the city, and gave them acknowledgements, which 
were transferable, like specie ; and by the transfer 
of these, on the books of the bank, all large pay- 
ments were universally made. And so great was the 
confidence in the management of the bank, that cer- 
tificates of these deposits were current throughout 
Europe. Adam Smith attributes the origin of this 
bank, to the desire of the Dutch to prevent their coin 
from migrating into the surrounding states, and 
being replaced by the inferior and debased coin, with 
which they were liable to be inundated. That this 
might have been the idea, from which the first con- 
ception of such a bank originated, is very possible. 
But, whoever will observe the advantages of such 
an institution, as they have been stated above, must 
be aware, that when the transactions of a commer- 
cial city became numerous, and the exchanges be- 
came active, merchants could not long fail of falling 
upon some instrument which their necessities so im- 
peratively required, and which all their habits of 
thought would be so likely to suggest. 

From what has been said, it is obvious that when 
all other methods fail of adjusting the differences of 
exchange between two places, specie must be procured, 



BANKS OF DISCOUNT OR LOAN. 247 

and remitted from the one to the other. This will al- 
ways pay the debt, and equalize the exchange. 
Hence, the highest rate of exchange, which, under 
natural conditions, is possible between two countries, 
is that which is sufficient to procure the specie, and 
to remit it to the place of payment. 



OF BANKS OF DISCOUNT, OR LOAN. 

We have already seen, that all production is the 
result of the application of industry to capital. But 
we also see, that the capital and the industry are 
frequently in the hands of different persons. One 
has capital, but does not wish to labor with it him- 
self. Another has industry and skill, but has no 
capital, with which to create products. It will be 
at once seen, that it will be a great advantage to 
both parties, if the capitalist can loan his capital to 
the laborer, and receive from him a fair compensa- 
tion ; while the laborer by uniting capital with his 
industry, will be able, after paying this compensa- 
tion, to retain a handsome remuneration for himself. 

For the accomplishment of this result, the intro- 
duction of a circulating medium presents great facil- 
ities. A flour merchant might have more flour than 
he wanted, and would be willing to loan it to another 
person, who wished to establish himself in business ; 
but, perhaps, the person who applies to him for the 
loan, understands nothing but the trade in iron. The 
capital of the one, therefore, in this case, could be of 
no service to the other. But let the flour merchant 
convert his flour into money, and then he can loan 
it to any one who needs it, no matter what may be 
the occupation in which he hopes to be the most suc- 
cessful. 

As men accumulate capital, they are enabled thus 
to loan. There are always multitudes of persons 
who wish to borrow. But he who is willing to loan, 



248 BANKS OF DISCOUNT OR LOAN. 

is also frequently engaged in active business, and can 
rarely take pains to ascertain the character of the 
borrower ; neither may he have any means of so 
observing his affairs, as to secure himself in season, 
against the results of dishonesty. Hence, his risk 
of loss would be great ; the rate of interest high ; 
the time requisite to effect and to watch over loans, 
great ; and there would be on the part of the capi- 
talist, but little disposition to part with the imme- 
diate control of his means. 

Thus, also, if a mechanic or merchant wished to 
borrow of a private capitalist, he would not know to 
whom to apply • much time would be lost in finding 
a capitalist ; and, if the capitalist were timid and 
suspicious, it might be utterly impossible to satisfy 
him that the security was sufficient, unless it were 
in property with which he was acquainted ; or, un- 
less the money were to be employed in operations 
with which he happened to be conversant. Thus, a 
great inconvenience would be suffered, both by those 
who were willing to lend, and by those who wished 
to borrow money ; that is, capital. 

Now, it is obvious, that these inconveniences 
would be greatly relieved, if, by a division of labor, 
some persons were set apart for the express purpose 
of loaning money. In this case, those who had more 
capital than they wished to employ, would exchange 
it for money, and place it in the hands of the money 
lender ; and those who wished to borrow would go 
to him for such accommodations as they needed. He 
would attend to the whole business of loaning, and 
collecting both the principal and the interest, thus 
acting as the agent of the capitalist, and receiving 
for himself a fair compensation for his expenses, la- 
bor and skill. 

In this manner, banks perform the service of bring- 
ing together the lenders and borrowers, so that he 
who has anything to lend, can lend it, if there be 
any one who wishes to borrow ; and, so that he who 
wishes to borrow, can borrow, provided there be any 



BANKS OF DISCOUNT OR LOAN. 249 

one who wishes to lend. And thus, by bringing the 
wants of both parties to act upon each other, each 
has the advantage of loaning or of borrowing, on the 
most favorable terms. 

Nor is this all. When this is once accomplished, 
the whole may be done, in the shortest possible time ; 
because, the greatest part of the time, without such 
an arrangement, would be spent in bringing together 
two individuals who could agree upon the loan in 
question. Hence, a negotiation, which might other- 
wise have taken half a day from the labor of both 
parties, may now be perfected, in a very few min- 
utes. This is a great saving of time and labor, and 
contributes greatly to the punctuality of the whole 
community, which is a still farther saving of time 
and capital. 

Besides, we have already shown that when a man 
devotes himself to any occupation, and to nothing 
else, he will acquire a skill which can never be at- 
tained by him who only practises it occasionally. 
This principle applies with full force to the present 
case. He whose only business it is to loan money, 
will keep himself, at all times, acquainted with the 
state of the money market ; he will ascertain the 
character and responsibility of the individuals who 
are desirous of loans ; he will be the first to ascertain 
the indications of their failure, either in skill or in 
fidelity ; and will, therefore, be the best prepared to 
decide, whether it be necessary to withdraw capital 
from a debtor. This will be especially the case, if 
there be interested in the management of the funds 
thus collected, several men engaged in general mo- 
netary operations, and who, therefore, are likely to 
collect all the information on these subjects, that 
may at any time be afloat in the mercantile commu- 
nity. 

Such is the nature of banks, as offices of discount. 
Some of the private banks of Great Britain are of 
this character. They issue no notes of their own, 
but merely negotiate the bills of other banks, or of 



250 BANKS OF CIRCULATION. 

the Bank of England. Of the same nature, to some 
degree, are saving's banks, of which the object is, to 
collect the capital from small owners, and loan it out 
at interest for their benefit. 



OF BANKS OF CIRCULATION OR ISSUE. 

If banks were established on the principles which 
we have suggested, and if the depositors and con- 
tributors placed in the hands of the banker, metallic 
currency, it is evident, that the bankers or bank 
would soon collect a great part of the metallic cur- 
rency in the country. Were this the case, it is 
evident that they might do a very considerable ser- 
vice to the community, by furnishing the depositor 
with a certificate of deposit, which he might use in- 
stead of the money which he had deposited. Thus, 
if I had deposited one thousand dollars in a bank in 
Providence and wished to use it in New York; if 
their certificate that they owed me so much money, 
were as good in New York as the specie, the carry- 
ing of this piece of paper, or the sending it by mail, 
would save all the trouble and risk of carrying the 
specie. If he who wished to send the same sum 
of money to Providence, did the same in New York, 
the exchange of these obligations by the respective 
banks, would perform the whole operation of the ex- 
change. Or, the same might be accomplished, if the 
bank upon sufficient security, loaned to me its obli- 
gation to pay on demand, and allowed me to use this 
obligation, in any place where it might be for my in- 
terest to do so. And, still more readily might this 
be done, if a number of individuals had deposited 
in the bank specie, for the purpose of having it 
loaned, at stated rates, to any persons who could of- 
fer a reasonable guaranty that whatever was bor- 
rowed would be, at an appointed time, refunded. It 
is always to be understood, that the bank obliges 



BANKS OF CIRCULATION. 251 

itself, in all cases, to pay these obligations to the 
bearer on demand, in the precious metals ; and that 
hence, these notes represent the value in the precious 
metals, which their obligation designates. And thus, 
from the nature of the case, a large amount of the 
money in circulation, would soon become specie cer- 
tificates, or notes of obligation of the bank. And 
they would get rapidly into circulation, because of 
their greater convenience for transportation; their 
diminished liability to robbery ; and the greater ease 
Avith which they could be identified in case they 
were stolen. 

But still further. It is manifest, that many of 
these bills thus issued by banks, in this condition^ 
would never need to be repaid in specie, but would 
be cancelled by an equal amount of similar bills from 
other banks. Again : Of those for which specie 
was demanded, it is impossible that it should all be 
demanded at the same instant. And yet more : As 
some persons were receiving payments in specie, 
other persons would also be depositing specie, which 
would make good the deficiency which this with- 
drawal occasioned. Hence, from these causes com- 
bined, it is evident that a bank thus constituted, 
might, without violating its engagement to pay every 
certificate or bill in specie, issue a larger amount of 
such obligations, than it at any time contained of 
specie in its vaults. And, inasmuch as it redeemed 
every such note on demand, with the precious me- 
tals, these notes would have, in exchange, the same 
value as the precious metals, every where in the im- 
mediate vicinity of the bank ; and they might have 
the same value in other places, if this bank were in 
correspondence with other banks of the same char- 
acter, in the different places with which its custo- 
mers transacted business. 

Inasmuch as these notes possess some considera- 
ble advantages over specie ; that is, as they are light- 
er, occupy less bulk, and are equal in exchangeable 
value to specie, they would be commonly preferred. 



252 BANKS OF CIRCULATION. 

That they are so preferred, every one proves, every 
day, by his own conduct. When we take a check 
to the bank, and can receive for it, either notes of 
the bank or specie, we never take the specie, except 
in such quantities as may be required for small ex- 
changes. The bills of the late United States Bank 
were frequently preferred to specie. Travellers 
would not uncommonly give a small premium for 
them if they could not be obtained without it. From 
these reasons it is manifest, that under such circum- 
stances, a portion of the currency in a country, when 
banks were established which had the confidence of 
the community, would become paper instead of 
metal. 

Now, banks, in this country, and in Great Bri- 
tain, generally perform all three of these functions. 
They receive and pay out money on deposit, and 
keep all the accounts necessary to these transac- 
tions ; they loan money at interest, and collect mo- 
nies so loaned ; and they also issue their own pro- 
missory notes, payable in specie, on demand. 

We shall close this section, by a brief notice of 
the manner in which banks are created in this coun- 
try, and a statement of their sources of profit. 

Banks, in this country, are chartered incorpora- 
tions ; that is, the privilege of banking is conferred 
on several associated individuals, by a special act of 
legislation. By these acts, banking companies are 
entitled to certain privileges, are subject to certain 
forms of legislative inspection, and are restricted, in 
their operations, within such limits as the wisdom of 
the legislature may see fit to impose. These privi- 
leges generally refer either to the mode of collecting 
their debts ; or to the limit of the liability of the in- 
dividuals, in case of failure ; or to the power of is- 
suing bills on demand. And the restrictions limit 
the amount of their circulation, in proportion to their 
actual capital or their specie in actual possession. 

When any number of persons desire to be incor- 
porated as a banking company, they present a pe- 



BANKS IN THE UNITED STATES. 253 

tition to the legislature of the state in which they 
reside, praying for such privilege. If the prayer be 
granted, they are thus incorporated, and the amount 
of their capital is limited in the act. This sum is 
divided into shares, or equal portions, of such amount 
as may be supposed, best suited to answer the wants 
of the community. At a given time and place, pub- 
licly notified, books are opened for subscription ; 
that is, every one is allowed to subscribe for as many 
shares as he wishes. The subscribers are called 
stockholders ■, and the shares are commonly, in mer- 
cantile language, called stock. When the necessary 
amount has been subscribed the stockholders meet, 
and choose, from their number, certain persons to 
conduct the operations of the bank, who are called 
Directors, and the whole of these together, are called 
the Board of Directors. These directors then choose, 
from their own number, a President, and some per- 
son not of their number, as Cashier. On these two 
last mentioned persons, the active duties of conduct- 
ing the affairs of the bank depend ; though the di- 
rectors meet, at stated times, for the purposes of 
general consultation, and especially to decide upon 
the commercial character of those, to whom they are 
requested to loan their money. 

The bank is thus organized. The subscribers are 
now required to pay to the cashier the sums which 
they have subscribed for; that is, that portion of the 
amount, which each has agreed to invest in the gen- 
eral business of the bank. Suppose the capital were 
one hundred thousand dollars, and each share were 
one hundred dollars, there would then be one thou- 
sand shares, and might be one thousand stockhold- 
ers. As soon as each one had paid the portion for 
which he had subscribed, one hundred thousand dol- 
lars would be collected in the banking house, and 
this would be the capital, with which they would be 
prepared to commence their banking operations. 

The manner in which these operations are con- 
ducted, is something like the following : The bank 
22 



254 SECURITY OF BANKS. 

loans its own bills, payable in specie, to those who 
wish to borrow, and receives the notes of individuals, 
of equal amount, in return, and charges them inter- 
est, which is paid in advance. The payment of 
these notes is always guarantied by some other per- 
son or persons, called endorsers. The ordinary period 
of loan, is thirty or sixty days ; at the close of which 
time, the notes are required to be paid, either in 
whole, or in part, at the discretion of the directors. 
Hence, if it were necessary, the whole affairs of the 
bank might be closed ; that is, all its bills might be 
called in, and all the notes it has received might be 
given up, and the bank remain as it was when it 
commenced, with the addition of whatever interest 
it might have acquired, in thirty or sixty days. 

Suppose, now, the capital of the bank were all 
paid in, in specie, and that it issued notes only to the 
precise amount of its capital. In this case, there 
would be a double and full guarantee for the pay- 
ment of its bills. The first guarantee would be the 
specie in its vaults, equal to the amount of all its 
bills in circulation; that is, for every bill it issued, 
there could be shown an amount of silver or gold, 
equal to what it had promised to pay. The second 
guarantee would be, the notes of the individuals, of 
substantial responsibility, for an amount greater than 
all the bills which the bank has issued, by the in- 
terest which was deducted from the note when it 
was received. Thus, suppose the capital of the bank 
to be one hundred thousand dollars, and that this has 
all been paid in specie. The bank loans one hun- 
dred thousand dollars of its bills, and receives one 
hundred thousand dollars' worth of the notes of in- 
dividuals of sound pecuniary ability. The bank is 
then liable to pay one hundred thousand dollars, and 
it has, wherewith to pay it, two hundred thousand 
dollars ; that is, one hundred thousand dollars in 
specie, and one hundred thousand dollars of the 
notes of individuals. I think that every one would 
be inclined to say, that such a bank was not only 



SECURITY OF BANKS. 255 

safe, but even superfluously safe. If all the debtors 
failed, and nothing was received for its issues, yet 
its notes would be safe ; for it would still have, in 
its vaults, sufficient to meet every demand, as soon 
as presented, even if all its bills were presented for 
payment at the same instant. 

Now, inasmuch as one perfect security is as safe 
as two, and, as this security is more than perfect, it 
might be diminished, and yet the bills of the bank 
be perfectly safe. Thus, it is morally certain, that 
all the bills of the bank can never be presented for 
payment at the same instant. If this can never be 
the case, as its debtors are continually paying back 
what they have borrowed, and, as it has, always, as 
much less to redeem, as it has already redeemed, it 
is manifest, that with something less than the amount 
of specie designated by its notes, it may always be 
prepared to meet every demand that may be made 
upon it. Again : If all its debtors failed, it would 
still have, in its specie, if equal to its bills in circula- 
tion, enough to redeem all its issues. But, with any 
tolerable management, its debtors would not all fail. 
It would be a very unusual occurrence, if one half 
of them failed. The bank would be then perfectly 
secure, if the proportion of its specie capital, in ac- 
tual possession, were sufficient to pay all deficits 
which could arise, from the failure of its debtors. 
Hence, we see, that the security of a bank would 
always be perfect, if it always possessed enough, in 
specie capital, to redeem every bill as soon as it was 
presented, and. also sufficient to guaranty the holder, 
against any injury which it might suffer, from the 
failure of its customers ; that is, if there existed this 
ratio between the issues of the bank, and the capital 
in its vaults, such a bank would be of undoubted se- 
curity. 

If it went beyond this ratio, and just in propor- 
tion as it went beyond it, there would be danger that 
its notes would not be redeemed in specie ; hence' 
that they would be of imperfect value, or even be 



256 SOURCES OF PROFITS OF BANKS. 

valueless, and thus, that the holders of them would 
lose, to the full amount of their depreciation. Thus, 
we see, in general, if the capital in specie were equal 
to the circulation, though all the debtors of the bank 
failed, the holders of its bills would lose nothing, but 
the stockholders would lose all their contributed cap- 
ital. If all the specie were stolen, and the notes 
were all paid, the holders would lose nothing, but 
the stockholders would lose all. But if there had 
been fraud, at the commencement, and no capital 
had been contributed, if the debtors of the bank all 
failed, the holders of the notes would lose all, and 
the stockholders would lose nothing. And, in gen- 
eral, if the debtors of the bank failed, the holders of 
the bills could lose nothing, unless the deficit thus 
created, were more than sufficient to consume all the 
actual capital of the bank. The capital of the bank, 
is the guarantee for the payment of the bills which 
the bank has issued in exchange for the notes of in- 
dividuals ; and hence the holders of these bills can- 
not suffer until this capital and the proceeds of these 
notes be both exhausted. 



OF THE SOURCES OF THE PROFITS OF BANKS. 

1. From deposits. As banks are extensively used 
for this purpose, they must have on hand, at all 
times, a considerable amount from this source, lying 
idle. This may be considered a part of their capi- 
tal, which they may use in their business. If a bank 
have, on an average, fifty thousand dollars of de- 
posits, it may issue bills to the amount of fifty thou- 
sand dollars beyond the amount which would other- 
wise be in its power, because, it has this additional 
amount of means wherewith to meet the demands 
made upon it. The first source of profit, is, there- 
fore, interest gained on deposits. 



THE UTILITY OF BANKS. 257 

2 From exchanges. As these are to be made be- 
tween different places, and as they must be made m 
drafts or in specie ; if two banks, in different places, 
undertake to transact this business in concert, they 
may greatly facilitate the means of payment be- 
tween two places. For this accommodation, they 
charge a per centage, varying with the rate of the 
market. This is another source of revenue. 

3. From interest on notes discounted ; that is, on 
its regular loans. This is its great source of revenue. 
The manner of this has been already explained. 

4. As, from what has been said, it is evident that 
a bank may safely loan an amount of its notes, 
greater than that of its capital, the interest of this 
excess, is an additional source of revenue. Thus, if 
a bank have one hundred thousand dollars paid in, 
and issue notes to the amount of one hundred and 
twenty-five thousand dollars, it receives interest on 
twenty-five thousand dollars more than its stockhol- 
ders have deposited. This is an addition to its re- 
venue, by its amount, whatever it may be. 



SECTION II. 

OF THE UTILITY OF BANKS. 

In stating the nature of banks, in the preceding- 
section, we have, to a considerable extent, unfolded 
the principles on which their utility depends. The 
subject is, however, susceptible of a more ample de- 
velopment. We shall, therefore, pursue it through 
the present section. 

We have shown that the functions of banks were 

of three kinds : First, As institutions of deposit ; 

Secondly, As institutions of discount or loan ; and, 

Third, As institutions of circulation. We shall pro- 

38* 



258 UTILITY OF BANKS OF DEPOSIT. 

ceed to consider their utility, in each of these three 
respects. 

I. The utility of banks as institutions of deposit. 

The utility of banks, in this respect, is derived 
from the saving of labor. They save the labor of 
transportation, of counting, and of vigilance. Of 
the manner in which this is done, I do not know 
that any thing further need be said. In so far as 
this is concerned, all that is necessary to be done, is, 
so to conduct their arrangements as to increase their 
utility in the greatest possible degree. 

In so far as a bank is intended for a place of de- 
posit for the circulating medium of any particular 
community, the arrangements which need be attend- 
ed to, will at once suggest themselves. For instance, 
its location should be such, as to accommodate the 
greatest number of its customers. Its hours of bus- 
iness should be the same as those of the mercantile 
community. Its affairs should be conducted with 
the greatest possible regularity. Mistakes frequently 
produce the same effect as fraud, and they always 
present, either to the one party, or the other, a great 
temptation to it. The physical and moral security of 
the institution/should be as great as possible. Hence, 
a banking-house should possess every practica- 
ble security against fire and robbery ; and, if neces- 
sary, should be always under the protection of a 
guard. Such is the case with the Bank of England. 
The officers of the bank, whether chief or subordin- 
ate, should be persons of tried integrity, and should 
also be so arranged in respect to each other, that col- 
Jusion should, if possible, be impracticable ; and 
their whole affairs should be so under the inspection 
of those, whose interest it is to detect any fraud, that 
dishonesty might be as difficult as possible. The 
chief officers should be men of property, so that 
their own interests would suffer more than they 
could gain, by any violation of faith. 

The necessity of all these provisions will be at 
once apparent. It is for the interests of the com- 



UTILITY OF BANKS OF DEPOSIT. . 259 

munity, as well as of the bank, that every one should 
transact his business by means of a bank ; that is, 
that he should receive and pay money through means 
of its agency. But, no one will employ this agency, 
unless he is certain that his money will be appro- 
priated as he directs, and that nothing shall be lost, 
either by carelessness or by dishonesty. 

But banks, as institutions of deposit, are designed 
also to facilitate the payments of money in different 
places. 

Thus, if two banks, the one in Boston and the 
other in New York, had perfect confidence in each 
other's resources, by drawing upon each other they 
might be of great service to the commercial commu- 
nity. In such a case, the Boston merchant who 
wished to pay a debt in New York might pay his 
money to the bank in Boston and send by mail the 
draft of that bank in payment of his debt. This 
draft would be paid at sight by the bank in New 
York, and thus the debt would be cancelled. A mer- 
chant in New York having money to pay in Boston, 
wonld take the same course, and thus the one draft 
would pay for the other. The same result would be 
accomplished if the bank at either place purchased 
drafts of individuals known to be solvent, and sent 
them to the bank in the other city for collection. By 
charging a slight percentage for the labor and risk, 
in addition to the regular rate of exchange, as it 
might happen to exist between the two places, the 
banks would earn a handsome profit and at the same 
time accommodate their customers. If a merchant 
in New York have one thousand dollars to pay in 
Boston, he again purchases of the same bank, the 
draft on Boston, which it may have bought, perhaps, 
the day before. This is now sent to his creditor, 
who presents it at the Boston bank, and receives his 
payment accordingly. The same result would be 
accomplished if the bank at either place, bought 
drafts known to be good, but payable by other per- 
sons besides the banks. And still further, if two banks 



260 UTILITY OF BANKS OF DEPOSIT. 

were well acquainted with the resources of each 
other, and were each confident that all the debts of 
the other would be paid, they might give orders on 
each other, for the facilitating of exchange. Thus, 
if A wished to pay money in New York, and a bank 
in Boston were authorised to draw on New York. 
it might furnish him with a draft which would be 
paid in New York, and receive the difference of ex- 
change ; and the same operation being performed by 
the bank in New York, each would receive, at every 
transaction, a moderate per centage, and yet add 
greatly to the convenience of the community. 

On this account, I suppose it would be much bet- 
ter, to have several banks nearly connected, as the 
branches of a large bank ; than to have them isola- 
ted, and independent of each other. When banks 
are, in some measure, responsible for each other, 
they must become acquainted with the standing of 
each other, and will, of course, be disposed to check 
each other's excessive transactions. Hence, they 
will also be more likely to give to each other every 
reasonable credit. When, on the contrary, each one 
is entirely isolated from all the rest, and no one bank 
either knows, or has a right to know the condition 
of the other ; each is naturally fearful of the solven- 
cy of the rest ; and thus, may not be willing to af- 
ford those facilities of exchange, which the transac- 
tions of commerce require. Hence, the price of ex- 
change is liable to rise unnecessarily high ; and, of 
course, an unnecessary expense is imposed upon the 
trading community. It is by means of its system of 
branches, and the supervision which it thus exerted 
over them, that the late United States Bank was en- 
abled to carry on, so extensively, the business of ex- 
change, with great profit to itself, and with great 
benefit to the community. Were banks, in general, 
constructed more upon this plan, I think it would 
greatly facilitate the business of exchange. 

While, however, it is granted that banks possess 
great facilities for conducting the exchanges which 



UTILITY OF BANKS OF DISCOUNT. 261 

must be effected between different countries and be- 
tween different parts of the same country, it is not 
to be denied that substantial objections may be urged 
against entrusting them with this agency. Inasmuch 
as they have the power of rendering money plenty 
or scarce at any particular time and place, they have 
it in their power to render the rate of exchange high 
or low at their will. This may be the more easily 
done, where a central bank is connected with nu- 
merous branches. Besides, banks are so powerful 
bidders that individuals dare not come into compe- 
tition with them in the market. Hence they are 
likely to monopolise the whole business of exchange, 
and can regulate it almost at their pleasure. 
This is of course a serious disadvantage, specially, 
as the rate of exchange should be left under all cir- 
cumstances to regulate itself. Taking these circum- 
stances into account perhaps it may be fairly doubted 
whether the business of exchange might not as well 
be left to individual competition. SeeRaguet on Cur- 
rency and Banking, Book 2d, Chap. 10. 

II. The advantages of banks, as institutions of 

DISCOUNT AND LOAN. 

1. It may be proper to suggest, at the beginning 
of our remarks on this head, that banks add nothing 
to the capital of a country. Capital has been already 
defined. It is either the material on which industry 
operates, the instruments with which it operates, or 
the means of sustentation, by which it is supported 
during the operation. The capital of any country, 
at any one moment, consists of the amount of these 
which it then possesses. Now, it is evident, that the 
collecting this in one place, rather than in another ; 
the loaning of it to one, rather than to another ; or 
the loaning of it, instead of not loaning it at all ; or 
the manufacture of printed or of written promises to 
pay money or any thing else ; can never increase the 
capital, that is, the wealth, or the amount of objects 
of desire, possessed by any country. A man is surely 
no richer, because he verbally promises to pay me 



262 UTILITY OF BANKS OF DISCOUNT. 

one hundred dollars ; nor am I any the richer for his 
promise. And, if neither he nor I be the richer, I 
see not who else can be the richer for it. And, if he 
actually lend me one hundred dollars, and I return 
it, at the end of the week, if I have used it profita- 
bly, the capital of the country has taken a different 
direction from that which it would have taken ; that 
is, it has been in my hands, instead of being in the 
hands of some one else, but this is all. The capital 
is the same, except that my industry may have add- 
ed somewhat to it. Could a nation, or an individ- 
ual, become rich by the issue of promissory notes, 
no one who could write a promissory note, ever need 
be poor. But it is manifest that this is not one of the 
methods by which the capital, that is, the objects of 
desire, is, in our present state, to be increased. This 
subject is so obvious, that it seems really almost un- 
worthy of serious consideration. The above remarks, 
however, have been made, because the contrary no- 
tion has been so frequently maintained, and even so 
frequently acted upon, to the great detriment of the 
commercial interests of the community. No one, 
who has the least practical acquaintance with the 
functions of capital and of money, can candidly re- 
flect upon the subject for a moment, without coming 
to a correct conclusion. 

2. But whilst it is allowed that banks add nothing 
to the existing capital of a country, it is also true 
that they are capable of rendering the existing capi- 
tal much more productive. In this manner, the prac- 
tical result may, to some extent, be the same as 
though they actually increased the capital of a 
country. If one million of capital be capable, un- 
der ordinary circumstances, of producing two hun- 
dred thousand dollars of annual revenue; and if, by 
means of any improvement in the manner of its dis- 
tribution, it can be made to produce three hundred 
thousand dollars, the annual result is the same as if, 
under the previous circumstances, the capital had 
been increased to a million and a half. And, it is 



NATURE OF CREDIT. 263 

because banks have frequently thus increased the 
productiveness of capital, that the notion has arisen, 
that they increase the capital of a country itself. 

The manner in which banks may increase the 
productiveness of capital, will then be the subject for 
our present consideration. ■ 

Banks increase the productiveness of capital, 
chiefly, by the facilities which they afford for the ex- 
tension of credit. The nature of credit is, however, 
first to be considered. 

u Credit is the term used to express the trust or 
confidence placed by one individual in another, when 
he assigns him money or other property in loan, or 
without stipulating for its immediate payment. The 
party who lends, ■ is said to give credit, and the party 
who bo?*rows, to obtain credit." # 

That the extension of credit, in every manner 
which can be rendered consistent with the safety of 
the lender, must increase the productiveness of capi- 
tal, may be seen from the following considerations : 

1. It is manifest, that the labor of man, without 
tools, must be, in the smallest degree, productive. 
What man, by the mere labor of his hands, without 
tools, could ever maintain a family, or even main- 
tain himself? Without an axe, he could neither cut 
nor cleave wood ; without a hod, he could not even 
carry mortar. He could add but very little to pro- 
ductiveness, and hence, his revenue must be reduced 
to the lowest limit. But give him tools ; that is, 
capital ; and the productiveness of his labor, is at 
once greatly increased. As he receives an equitable 
share of this productiveness, his wealth is also in- 
creased. Thus, by the use of a small portion of 
capital, both he, and the community ; that is, every 
individual ; are rendered richer. 

2. But this is not all. A man may have skill and 
instruments, but he may not have the material, 
on which to exert his industry. In this case, his in- 

* M'Culloch. 



264 UTILITY OF CREDIT. 

dustry and instruments will be useless. Thus, a 
cabinet-maker may possess both skill and tools, but if 
he have no mahogany upon which to labor, all his 
skill will be of no value. If he can procure mate- 
rials, he can, by a week's labor, add very consider- 
ably to the total wealth, both of the community and 
of himself. A blacksmith may have skill and tools, 
but if he can procure neither iron nor coal, his skill 
and tools are valueless. Let him possess iron and 
coal, and his industry and skill will not only sup- 
port him, but render the annual revenue of the so- 
ciety much greater. A merchant may have skill in 
the business of exchange, which might be a great 
saving to a whole neighborhood, but if he have no 
means of procuring a stock of goods with which to 
commence exchanges, his skill will add nothing to 
the wealth of the community. And thus, we see, 
that in order for the industry and skill of the com- 
munity to operate most productively, it must be as 
universally as possible united with capital. 

But, it may be said, let all these operatives labor 
in the employment of those who possess capital, until 
they have acquired sufficient to commence produc- 
tion on their own account. This, to a considerable 
extent, is always done ; and, by this means, the pro- 
ductiveness of a country is annually increased. It 
may be proper, however, to show in what manner, 
by a different arrangement, and a wider dissemina- 
tion of the benefits of capital, productiveness may 
be more rapidly increased. 

1. As to Capitalists. 

1. Were this plan universally adopted, it would 
oblige capitalists either to extend their business be- 
yond their wishes, or else to leave many laborers 
unemployed. If a capitalist loaned nothing, he 
must invest all his annual revenue in the business of 
his own profession. Were he successful, in" this 
manner, he would, in the course of years, be obliged 
so to enlarge all his means of production, that a large 



UTILITY OF CREDIT. 265 

part of his affairs must be managed by subordinate 
agents. 

2. The talent for conducting large transactions, is 
by no means universally possessed. Many men, who 
are capable of superintending an establishment of 
ten thousand dollars per year, would be utterly in- 
capable of conducting one, of one hundred thousand 
dollars per year. And, in general, in proportion to 
the number of grades of agency necessary to the 
management of any concern, the ratio of profit di- 
minishes. 

3. Suppose capitalists always to employ their own 
capital, the burden of every man's business would 
increase with his years ; and thus, the older he grew, 
and, of course, the more unfit for business, the more 
intolerable would the pressure of business become. 
This is unnatural. As a man advances in years, 
and is less adapted to labor, he is disposed to retire 
from it, and to seek for some method in which, with- 
out active employment, he may reap the advantage 
of his previous industry and frugality. 

II. As to Laborers. 

1. A laborer will work with skill and success, just 
in proportion to the personal advantage which he 
reaps from his own labor. Now, every one must 
perceive, that these inducements will operate with 
more success, when he is laboring upon his own cap- 
ital and reaping all the advantages of his skill, than 
when he is laboring upon the capital of another, and 
is paid only at a stipulated price. A hundred men, 
each possessing a capital of two hundred dollars, al- 
lowing each one to select his own place for labor, 
would add much more to the annual revenue of a 
country, than one hundred men, all laboring in the 
same place, under an employer, who himself owned 
the whole twenty thousand dollars. 

2. Besides, were capital thus to accumulate, in a 
few hands, it would confine the operations of indus- 
try to a few places, and thus materially add to the 
cost of production, and diminish the conveniences 

23 



266 UTILITY OF CREDIT. 

of the community. Many of the trades require to 
be conducted very near to the residence of the con- 
sumer. The blacksmith, the carpenter, the cabinet- 
maker, the shoe-maker, the baker, and the retail mer- 
chant, must reside in the midst of the community 
for whom they labor. Were capital always to be 
employed by those who own it, it would, of neces- 
sity, be collected into large masses, and the consu- 
mer would lose a great deal of time in procuring the 
product which he needed. The farmer would be 
obliged to go to the city to have his horse shod or his 
plough mended, and thus, the labor of transporta- 
tion, and the consumption of time would be greatly 
increased. And it must be moreover evident, that, 
in as much as the extension of credit tends to afford 
special advantages to the laboring classes, it is pe- 
culiarly adapted to the genius of a republican gov- 
ernment. 

From these reasons, I think it evident that the 
productiveness of a country must be greatly increas- 
ed, by any means which shall enable the skillful 
and industrious, in any profession, to obtain the use 
of capital, by means of which, they may labor on 
their own account, and, in any place which presents 
the strongest inducements of personal interest. They 
will thus produce more abundantly, and enrich more 
rapidly, the country, as well as themselves. And, 
if such arrangements can also be made, that those 
who loan them the capital shall be perfectly secure, 
it will be a mutual advantage to the capitalist and to 
the laborer. While the laborer is improving his con- 
dition, the capitalist is also enjoying, in security, the 
benefit of his former industry; and thus, without 
laboring himself, is enjoying all the advantages of 
labor. And, I believe, that arrangements of this kind 
are commonly found to be more advantageous to a 
capitalist, than a continuance in active business. The 
general opinion of mercantile men, is, I think, that 
merchants in declining years, are more likely to lose, 
than to gain, by continuing in business beyond the 



UTILITY OF BANKS OF DISCOUNT. 267 

period of active enterprise. The last ten years of a 
life, have frequently been destructive of the results 
of all the. labors of the forty previous years. 

The same principles apply to all persons employed 
in labor or trade. And hence we see, in general, 
that it is by means of credit, that those who pos- 
sess more capital than they wish personally to em- 
ploy, may, without labor, derive from it an equita- 
ble revenue ; and that those who have less capital 
than they can profitably employ, may procure the 
use of such capital as they wish, and may thus be 
enabled to enjoy the full benefit of their skill and 
industry. It is thus that a poor man, with industry 
and skill, is enabled, at once, to reap all the advan- 
tages of riches ; and a rich man, whose power of 
labor is past, to reap, to a considerable degree, the 
advantages of industry and skill. The benefit, to 
both parties, is great and mutual. And, it is mani- 
fest, that any institution, which contributes to ac- 
complish such a result, must be of material service 
to the community. 

Now, banks are such institutions. They stand in 
an intermediate place, between capitalists and la- 
borers ; and enable both to derive advantage from 
each other. 

They do this, in the following ways : 

I. They collect together capital, which would, 
otherwise, be scattered and useless. 

1. This has been in part illustrated before. The 
greater the difficulties of loaning, the less will al- 
ways be the amount loaned. If he who has a few 
hundred dollars to loan, is obliged to wait until some 
one calls for it, it will lie for the greater part of the 
time idle. And if he be obliged to observe the cir- 
cumstances of a debtor, of whom he may know 
very little, the time and labor thus spent will fre- 
quently be as valuable as the interest he is to re- 
ceive. Hence, a large amount of capital will al- 
ways remain unproductive ; and, consequently, a 



268 UTILITY OF BANKS OF DISCOUNT. 

large amount of industry, which might have been 
rendered productive by means of it, will languish. 

2. But this is not all. A large amount of capital 
is always in the possession of widows, minors, and 
aged persons, who are unable to unite with it, that 
labor which is necessary for its productiveness. 
These persons can neither labor with it themselves, 
nor are they capable of superintending the loaning 
of it, either safely or profitably- Hence, the fear of 
losing all will deter them from loaning, and they 
will hoard it, and live upon the principal, until it is 
all spent, and they are reduced to poverty. Thus, 
the property which might have been useful to others, 
and might have supported themselves without any 
diminution of its amount, is in a few years dissi- 
pated ; and the gains of a previous life, instead of 
being added to the capital of a succeeding genera- 
tion, are abstracted from it for ever. 

3. There is always in every community, a large 
number of persons engaged in active industry, whose 
gains cannot at present, and sometimes cannot at all 
be invested in their employment. Such are laborers, 
whose gains cannot be of service to them, until they 
have accumulated a considerable sum. A' laboring 
farmer who saves from fifty to one hundred dollars 
a year, cannot with this buy a farm, until he have 
accumulated the earnings of several years. He can- 
not conduct a farm profitably upon borrowed capital, 
because the income of agriculture will rarely allow 
of it. If he can invest these gains as they accrue, 
and receive interest for them, they will annually add 
to his stock. If he cannot thus invest them, they 
must lie idle, doing good neither to himself nor to 
any one else. The same is the case with mechanics, 
and various other laborers. 

Besides these, there is a very large class of the 
community whose employment cannot be increased 
by the addition of capital. The merchant can, by 
investing his annual gains in his stock in trade, in- 
crease his sales, and, of course, his profits. But how 



UTILITY OF BANKS OF DISCOUNT. 269 

can the physician, or the lawyer, or the clergyman, 
or any person who is paid by salary, do this? Hence, 
if there be not some means by which these annual 
gains can be conveniently collected and invested, 
they will be either foolishly squandered as fast as 
they rise, or they will be hoarded without any an- 
nual profit, either to their owner or to the com- 
munity. 

For these evils, a bank provides the remedy. The 
stock of a bank is all divided into shares, of such 
amounts that they are within the purchase of most 
persons who may wish to invest their capital. These 
shares are always for sale, at a price regulated by 
the interest which they annually pay. He who has 
one , hundred dollars to invest, purchases one hun- 
dred dollars' worth of bank stock. He receives in- 
terest on this one hundred dollars, from the day he 
purchases it, until the day on which he sells it again. 
When he has accumulated any thing more, he pur- 
chases in like manner. And thus he has a safe place 
of investment for all his gains, where they are both 
held securely and without any trouble to him, and 
where they also pay him an annual revenue. When 
he wishes to withdraw these funds, and to appro- 
priate them to some other use, he sells his stock ; 
that is, some one becomes one - of the stockholders 
instead of himself; and he thus receives back the mo- 
ney which he formerly paid in. These shares are, 
every day, to be bought and sold in the market ; and 
hence, he can generally invest or withdraw his mo- 
ney, any day in the year, at an hour's warning. 

On this account, it will at once be evident, that the 
shares of banks should be of such amount as will 
best accommodate the communities for whose bene- 
fit they are specially designed. When they are in- 
tended for capitalists, they may as well be large as 
small. But when they are for the benefit of those 
who have but small amounts to invest at one time, 
they should be small. They will, in this manner, 
enable persons of small means, the more easily to 
23* 



270 UTILITY OF BANKS OF DISCOUNT. 

invest ; and, on account of this increased conven- 
ience, as their stock will be more eagerly sought for, 
it will bear a higher price in the market. 

The utility of banks would be still further in- 
creased, if, besides this mode of investment, they 
were in the habit of receiving small deposits on in- 
terest, which might remain with them, to be drawn 
for at the pleasure of the owner. Many persons, 
having small amounts of property to invest, are un- 
acquainted with the process of buying and selling- 
bank shares, and thus, either spend their money 
thoughtlessly, or allow it to lie idle. Were banks to 
receive all such sums on deposit, and allow for them 
a lower interest than they charge their customers, 
they might thus conduct a profitable business as the 
loaners of money for the public, and redeem a large 
amount of capital from unproductiveness. This is 
the practice of the banks in Scotland. 

It is true, that this is accomplished, to a consider- 
able degree, by savings banks. But these might still 
be very useful by receiving money in smaller sums 
than those received by the bank, and it might remain 
with them, until it became large enough to invest in 
a bank of discount. Thus, both institutions might 
assist each other ; and the bank of discount would 
have this additional advantage, that it could allow 
of the withdrawal of money on demand, which a 
savings bank cannot always readily do. 

In this manner, banks collect together the scattered 
and useless portions of capital, and place it in a form 
in which it may conveniently be used; and they 
also collect together that which would, perhaps, be 
used, but which, without their assistance, would be 
used in a much less convenient manner, both to the 
borrower and the lender. 

II. Let us now see, in what manner, after this 
capital has been thus collected, banks enable the in- 
dustrious classes to enjoy the benefit of it. 

The most obvious method in which without 
banks, the capitalist would assist the laborer, would 



UTILITY OF BANKS OF DISCOUNT. 271 

be to sell him goods on credit. Thus, suppose a 
mechanic wished to establish himself in a village 
where his services would command a high remuner- 
ation ; he might purchase of the dealer in the ma- 
terial which he wanted, as much stock as he wished, 
at three or six months, or a year's credit ; and, with 
this capital, he could commence his business. By- 
converting this material into product, and selling it, 
he would be able to liquidate the debt ; and all the 
surplus would be his own. Or, take the case of a 
wholesale merchant. Suppose such a merchant to 
import, into a large city, two hundred thousand dol- 
lars' worth of goods. If he shall wait for the indi- 
viduals who may need his wares, to come and pur- 
chase them, it may be a year or two before his sales 
are completed. There may, however, be fifty retail 
merchants, of small capital, in the surrounding 
towns, who are not able to pay in cash for his com- 
modities, but who, if they can obtain them on credit, 
will be able, both to sell them to good advantage to 
themselves, and also to refund the money in three, 
or six months. It will be of advantage to both par- 
ties, the one to sell, and the other to buy, on credit. 
And this is the manner in which very much of this 
business is commonly transacted. 

But to this arrangement there is manifestly a limit, 
in the pecuniary ability of the wholesale merchant. 
If he purchase his goods from abroad for cash, this 
limit is soon arrived at. If he purchase them on 
credit, he can extend his business no farther than his 
foreign creditor may permit. Under these circum- 
stances, in times of ordinary caution, there would be 
a large class of industrious men whose enterprise 
would be greatly crippled from the want of capital. 

But even when this means can be resorted to, it is 
generally better for a retail merchant of good char- 
acter and of industry, to borrow of a bank than to 
purchase goods on credit. 

1. If his character- be good the bank, in the neigh- 
borhood where he is known, will lend to him at a 



272 UTILITY OF BANKS OF DISCOUNT. 

lower rate than the merchant in the city where he 
is not known. I speak of the merchant's lending to 
him, because, to furnish him capital on credit, is to 
lend to him that amount of capital. The merchant 
always so considers it, and hence he always has his 
cash and his credit prices. 

2. By purchasing for cash he purchases his goods 
at a less price, and can sell them at a lower rate to 
his customers. 

3. To borrow in this manner is clearly of advan- 
tage to the town in which he resides. He in this 
manner brings into profitable use capital which 
would otherwise have been idle ; and the very man- 
ner in which he uses it enables him to sell at a 
cheaper rate to those of whom he has borrowed it. 

It is in this manner, therefore, that banks quicken 
the industry of a people. They first collect together, 
and. render available, all the capital of a country ; 
and they so use it, that every one who needs it, and 
can give the requisite assurance that it will be well 
used, can obtain it. They thus, by giving facilities 
to the extension of credit, enable every individual to 
reap all the benefits which can arise from his indus- 
try, his skill, and his moral character. Without 
credit, if he possessed no capital, he would be left 
to the resources of his simple industry, or simple 
manual labor. In just so far, therefore, as banks 
tend to the extension of this kind of credit, they con- 
fer a benefit upon the industrious. Thus, every one 
-may have the opportunity, so far as the capital of 
the country will allow, to unite his industry with 
capital, and reap the resulting advantage ; and, on 
the other hand, all the capital of the country is ena- 
bled to be united with industry, and thus it is all 
employed, in some way, in the business of produc- 
tion. The nearer any community approaches to such 
a state of things as this, the more intense will be its 
industry, and the greater its productiveness. 

So far as banks confine themselves within these 
limits, they are advantageous to the community. It 



UTILITY OF BANKS OF DISCOUNT. 273 

is however, but too manifest that they may be great- 
ly perverted from these their legitimate objects. Thus, 
instead of lending to the industrious producer of small 
means, they may lend to the wealthy capitalist at 
the ordinary rate of interest, that he may loan to 
the producer at exorbitant interest. Instead of ben- 
efitting the producer, they thus allow themselves to 
be used as the instruments for fleecing him. Or 
again, they may lend to capitalists for the purposes 
of speculation ; thus enabling them to raise to what- 
ever amount they please, the price of the most im- 
portant necessaries of life. Or still further, the banks 
themselves may become purchasers, and may buy 
up, on their own account, the most valuable staple 
of a country for the sake, as in the preceding case, 
of deriving enormous profits by the monopoly. 
When banks in consequence of such transactions 
become embarrassed, their resort is to a suspension 
of specie payments. They are thus enabled to keep 
up the price of whatever they have to sell, and to 
pay off their debts in depreciated currency. And 
what is strange, they, not unfrequently, persuade 
the community, that this course is taken entirely for 
the public good. Such conduct should always with- 
out fail work the forfeiture of the charter of a bank, 
whatever might be the consequences. When banks 
transact their business in this manner, they become 
a nuisance. By sudden expansions and contractions 
of the currency, they embarrass and impoverish the 
industrious dealer and enrich the money lender, the 
bonds of duty in the meantime are sadly released 
and the moral principles of the mercantile commu- 
nity suffer a frightful deterioration. 

And still more. As banks are permanent corpora- 
tions, of which the laws and resources are known, 
they present an inducement for the investment of 
foreign capital. This is always an advantage to 
any country, provided the capital be profitably em- 
ployed and not squandered in useless investments. 
Capital will never be invested, in any country, un- 



27*4 UTILITY OF BANKS OF DISCOUNT. 

less the rate of interest in the country where it is 
invested, is higher than in that from which it is sent. 
In this case, the former country derives the advan- 
tage from the difference. If money can be borrowed 
in London, at four per cent., and be loaned here, for 
six per cent., we have the benefit of the use of the 
money, and of two per cent., in addition. In this 
manner, money is constantly borrowed by a new 
country from an old, with great advantage to both, 
but specially to the new country. 

If such be the utility of banks, in this point of 
view, it is of importance that their arrangements 
should be so made, as to loan, on the most conven- 
ient terms, to those who are able to give proper secu- 
rity. The mode, in this country, is by receiving a 
note of hand, with approved endorsers, and made 
payable at a specified time, say at sixty or ninety 
days. The bank, however, allows no interest on 
deposits made by the drawer of the note. This mode 
of transacting business, answers a very valuable, 
purpose ; but, it may be questioned, whether its con- 
venience might not be very considerably increased. 

Judging by these principles, it would seem that 
the Scottish banks were conducted more correctly, 
as well as more beneficially to the public, than any 
institutions of the kind at present known. 

1. As offices of deposit, they receive all sums, not 
less than £10 sterling ; and, for such deposits, allow 
interest. Less sums than this are placed in the sav- 
ings banks, until they become sufficiently large to 
be deposited in a bank. These deposits are, gener- 
ally, made by persons who labor in agriculture or 
manufactures. The whole amount thus deposited, 
is equal to about twenty-four millions pounds ster- 
ling, or not far short of one hundred and twenty 
millions dollars. This large sum is thus redeemed 
from idleness, and added to the productive capital of 
the country. 

2. They discount notes, as our banks do, but they 
have another mode of loaning, which is called cash 
credits. 



UTILITY OF BANKS OF CIRCULATION. 275 

When a man wishes a cash credit, he finds a 
bondsman, who promises to indemnify the bank for all 
that it may lose, by loaning to him within a certain 
sum ; or else he places real estate in the power of 
the bank, to a sufficient amount to render it secure 
within the sum which he wishes to borrow. The 
bank then opens with him a cash account, or allows 
him to draw for any sum within the specified 
amount. He is charged interest only for the amount 
which he borrows. As fast as he is in funds, he de- 
posits all he can spare, in the bank, and for every 
thing thus deposited, he is allowed interest ; so that 
his interest on deposits always diminishes the inter- 
est on his debt. Thus he borrows and pays, suc- 
cessively; and, at stated seasons, the accounts are 
adjusted. 

The advantages of this system, are : 1st. That it 
enables an industrious man to procure credit to the 
amount of his real estate, and, hence, to do more 
business with the same capital, than any where else. 
2d. That by rendering every deposit valuable, it 
stimulates him to frugality. 3d. It enables the bank 
to understand, more correctly, the state of his af- 
fairs, and, hence, to know how deserving he is of 
confidence. 4th. That this may be done with great- 
er safety, than in any other mode, is evident from 
the fact, that while the Scottish banks have been 
liberal in their accommodations, and have, by the 
acknowledgement of all, been of the most impor- 
tant service to that country, only one of them has 
ever been known to fail. These are, surely, the 
best evidences of the wisdom of any practical 
system. 

Such, I suppose, to be the advantages of banks, 
as institutions of discount or loan. 

III. On the utility of Banks, as institutions of 

CIRCULATION. 

I have already shown, in what maimer it is possi- 
ble for banks to issue notes for a larger amount than 
they at any moment actually possess in specie, and 



276 UTILITY OF BANKS OF CIRCULATION. 

that they may do so, to a certain extent, with entire 
safety to the community. Should banks be gener- 
ally established, and all of them adopt this system, 
as they would naturally do, it is evident that there 
would be in circulation, more paper than specie; 
that is, that the actual circulation would, to a great 
extent, become paper, instead of the precious metals. 

But I have already shown, that a community, in 
any given condition of exchanges, requires no more 
than a given value of the circulating medium, for 
its exchanges. If the amount be increased, its value 
Will diminish, and vice versa. If it need an amount 
equal to a million bushels of wheat, no more than 
this can be employed, and if more he introduced, its 
value will fall, till it become equal to a million bush- 
els of wheat. 

Now, by issuing paper money, the whole amount 
of money is increased, and, hence, its price falls. 
But, as every paper dollar is redeemable in silver, 
its value is still equal to that of a silver dollar. 
Hence, the whole amount of currency, silver and 
paper together, falls in price, so that money becomes 
cheap, and you can buy more abroad with a silver 
dollar, than you can buy with a silver dollar, at 
home. Now, in this state of things, if the paper and 
coin were equally valuable in foreign countries, 
either would be exported, at pleasure. But, inas- 
much as only the metal is valuable abroad, this, ex- 
clusively, is sent out of the country, in the pur- 
chase of other articles. And, it will be sent out, 
until the price of the circulating medium at home, 
is reduced to its ordinary price in other countries. 

Suppose that two-thirds could be thus sent away 
without impairing the soundness of the currency at 
home. Business would then go on as securely, and 
as well, as it did before. But, these two-thirds 
would procure in exchange an equal amount of other 
capital, by which the wealth of the country is by 
so much increased. In the mean time, all the ex- 
changes of the country are carried on by means of 



UTILITY OF BANKS OF CIRCULATION. 277 

the remaining one-third, plus the expense of the 
manufacture and management of the cheaper com- 
modity, paper ; that is, the given operation, ex- 
change, is carried on by means of an instrument, 
which costs only about one-third of the expense, 
which the former instrument cost. 

This, then, is the advantage of banks of circula- 
tion. They furnish to the community a cheaper ar- 
ticle of exchange. And the extent of the benefit is 
easily estimated. If the whole of the metallic cir- 
culating medium were exchanged for paper, we 
should have the benefit of the interest of this whole 
amount. If twenty millions of specie were wanted 
to carry on the exchanges of this country, and the 
whole were exchanged for paper, we should be bene- 
fitted to the amount of the annual interest of twenty 
millions, or, at six per cent., of one million two hun- 
dred thousand dollars per annum. If three-fourths 
of it were sent away, our benefit would be equal to 
nine hundred thousand dollars per annum. This is 
the whole pecuniary advantage of a paper currency, 
over a metallic. It consists in substituting a cheaper 
for a dearer circulating medium. And, our annual 
advantage, supposing the cheaper to be equally good, 
is precisely equal to the interest of the difference. 

This deserves to be seriously considered. Banks 
do not create capital. The issuing of paper money, 
does not render money abundant. If it be issued to 
such an extent, that its soundness is doubted, it pro- 
duces an effect precisely the reverse. If, while it is 
perfectly sound, it be issued to an amount beyond 
the wants of the community, specie will be export- 
ed, until the equilibrium is restored. If but twenty 
millions of value be needed in exchange, you can 
employ but the value of twenty millions. The only 
benefit of a paper currency, supposing it to be per- 
fectly sound, over a metallic currency, is first, its 
greater convenience in exchange : and, secondly, that 
24 



278 PAPER AND SPECIE CIRCULATION. 

it enables us to use a cheaper instrument instead of 
a dearer, and to employ the amount of the difference 
in the various operations of human industry. 



SECTION III. 

ADVANTAGES AND DISADVANTAGES OF A PAPER 
CIRCULATION. 

Having thus endeavored to illustrate the nature of 
a paper circulation, it may be of some importance to 
explain, in as simple a form as possible, the advan- 
tages and disadvantages which appertain to it. 

1. The advantages of a paper circulation. These 
are two, economy and convenience. 

I. Economy. 

1. The material in use, in a paper circulation, as 
we have shown, is of much less value than that in a 
specie circulation. A bill worth one thousand ounces 
of silver, may not cost more than two or three cents. 
Now, in just so far as a paper circulation accom- 
plishes the same result as specie, and accomplishes 
it at a less price, the community is the gainer by the 
difference. 

2. The wear and tear of paper money, as well as 
the original cost, is less expensive than that of sil- 
ver and gold. Were silver and gold transported, as 
paper money now is, the friction would reduce the 
weight of coin so rapidly, that new emissions would 
be much more frequently necessary. 

3. But, specially, as the introduction of paper mo- 
ney renders a considerable part of the specie former- 
Jy employed, useless, it may be exchanged for other 
capital. Specie is, in itself, incapable of production. 
If a part of it will answer the purposes of exchange, 
all the remainder may be changed for productive cap- 



PAPER AND SPECIE CIRCULATION. 279 

ital. Hence, the gain, as has been shown in the pre- 
ceding section, is equal to the amount of this differ- 
ence employed in productive, and the same amount 
employed in unproductive capital. If five millions 
can be, without injury, dispensed with, the benefit 
is equal to the difference between five millions in 
productive and five millions in unproductive capital. 
II. Convenience. 

1. Paper money is much more easily transported. 
To travellers, and men in the ordinary affairs of life, 
this is a matter of considerable consequence. Specie 
is heavy and burdensome. Any amount of paper 
money which a man needs, may be comprised in as 
small a bulk as he chooses. When large transfers 
of money are to be made between distant places, the 
additional convenience and security are still more 
evident. 

2. Paper money is less liable to robbery. As we 
can render its bulk whatever we please, it can be 
more readily concealed, if we doubt the honesty of 
our associates. Specie is heavy, bulky, and noisy, 
and, hence, its presence is unavoidably discovered. 

3. Paper money, if stolen, is more easily identified, 
and, hence, more easily recovered. A man, by no- 
ting the number and marks of a bank bill, may safe- 
ly swear to its identity; but, inasmuch as coin is in- 
tentionally all alike, this would be impossible in the 
case of specie. 

These are the principal advantages, so far as I can 
see, of a paper currency. If there be any others, I 
have not been able to discover them. 

On the other hand, its disadvantages are three, 
viz : Its liability to forgery, to fraud, and to fluctua- 
tion. 

I. It is liable to forgery. The risk, in this re- 
spect, from the use of bank paper, is considerable. 
The security from signatures is small, since good 
penmen, by practice, can easily learn to imitate any 
signature. The principal security arises from the 
quality of engraving and of the paper. But, as any 



280 PAPER AND SPECIE CIRCULATION. 

one, who can engrave sufficiently well, can so engrave 
a false bill, that no ordinary examiner can distinguish 
it from a true one; every man is liable to be imposed 
upon, and to suffer a total loss, to the exact amount of 
the imposition. It is true, that coin is also liable to be 
falsified ; but, the process is much more difficult and 
expensive than that of engraving. False coin, be- 
ing liable to detection from its color, weight, and. so- 
norousness, is more readily detected. Inasmuch, 
therefore, as the liability to counterfeiting, is greater 
in paper money than in specie, this difference is to 
be set down in the list of the disadvantages with 
which it is chargeable. 

On this account, banks which issue paper money, 
are under obligations to take every precaution to ren- 
der their bills as little liable to be counterfeited, as 
possible. The greatest security, as we have remark- 
ed, is in the excellence of the engraving, and in the 
peculiarity of the paper. Hence, they should em- 
ploy, for the engraving of their bills, none but the 
best artists ; and thus employ talent, which would 
be under no temptation to engage in counterfeiting. 
They should never use plates which have been so 
much worn, as to render the impression coarse, in- 
distinct, and easily imitated. A bank which, to save 
expense, uses a worn-out plate, enriches itself, at the 
expense of the public. I see no reason why a bank, 
which issues bills of this description, and thus takes 
no pains to secure the public against fraud, should 
not be liable to pay the false, as well as the true 
bills. Were this done, more care would be used, 
and counterfeiting would become far less common. 

II. Fraud. I have elsewhere shown, that if the 
capital of a bank be all paid in, and the notes which 
it holds against individuals, and which it has receiv- 
ed in exchange for its bills, be all good, the holder 
of its bills has two perfectly good securities. Were 
all the capital stolen, he would be safe ; and, were 
all the notes bad, the capital remaining, he would 



PAPER AND SPECIE CIRCULATION. 281 

still be safe. We have also shown, that he would 
always be safe, so long as the capital actually paid 
in, was sufficient to cover any deficiency which 
might arise from a failure of the debtors of the bank. 
And in the worst event, supposing no loans to be 
made for a longer period than 60 days, the holder of 
the bill could not be obliged to wait at farthest lon- 
ger than that time. And, with ordinary skill and 
fidelity, it is manifest, that the issues of a bank may 
always be kept within this limit, and thus the hold- 
er of its bills incur no risk. 

But neither the skill nor the fidelity of man is al- 
ways to be trusted. Hence, banks frequently fail, 
and inflict either a partial or a total loss upon the 
community. 

1. Banks may frudulently commence issues, when 
only a part, or when not even any part, of their cap- 
ital has been paid in. Suppose that only a part of 
their capital be paid in; then the public, instead of 
having a guarantee equal to the whole amount of its 
capital, over and above the notes of individuals held 
by the bank, has a guarantee equal only to the 
amount of the part paid in. If the capital of a bank 
be one hundred thousand dollars, and only ten thou- 
sand dollars be paid in, and the bank issue one hun- 
dred and fifty thousand dollars in bills, it possesses 
only a guarantee of ten thousand dollars, to ensure 
the payment of one hundred and fifty thousand dol- 
lars by the debtors of the bank. In a time of com- 
mercial pressure, or in case of loss by accident or 
robbery, such a bank must fail, and the holders of 
the bills must suffer a loss equal to the deficiency by 
the failure of the debtors of the bank, the costs of 
closing its concerns, and the loss of interest until its 
bills have been paid. 

Again : Suppose that none of the capital stock 
were paid in, but that the stockholders simply gave 
their notes for their shares. The security would 
then be precisely equal to the average goodness of 
the notes of individuals received by the bank, in ex- 
24* 



282 PAPER AND SPECIE CIRCULATION. 

change for its bills. It would have no capital on 
hand to redeem these bills, and, on the least pressure 
for specie payments, it must fail. The notes of in- 
dividuals, in a time of scarcity of money, would be 
worth much less than par ; and, as the stockholders 
would pay for their notes which they gave for shares, 
by surrendering up the shares for which they gave 
them, the whole loss would fall on the holders of 
the bills. 

Again : Suppose that, as in the last case, no stock 
were paid in ; that the stockholders were the direc- 
tors themselves ; and that they accommodated them- 
selves with money, without ever requiring notes of 
each other. Here, there would be no security what- 
ever, either in bank capital or in the notes of indi- 
viduals. In such case, the bank must speedily stop 
payment, and the whole loss of its issues would fall 
upon the holders of its bills. This, as well as the 
last case, is nothing more than a fraudulent arrange- 
ment for picking the pockets of the public, on an 
extensive scale. It is nothing more nor less, than 
downright swindling, and should expose a man to 
the same punishment as house breaking. 

Nor is this danger merely imaginary. The amount 
lost by the public, from the failure of banks, is ac- 
tually enormous. Mr. Gallatin, a most able and com- 
petent authority on this subject, in his pamphlet on 
the currency, has made the following statement, 
which, from the character and accuracy of the au- 
thor, is entitled to full credit. 

" We have an account of one hundred and sixty- 
five banks which have failed, between the first of 
January, 1811, and the first of July, 1830. The 
capita] of one hundred and twenty-nine of them, 
amounted to more than twenty-four millions of dol- 
lars, stated as having been paid in. The whole 
amount may be estimated at nearly thirty millions, 
and our list may not be complete. The capital of 
the State banks now existing, amounts to about one 
hundred and ten millions. On a total capital of one 



PAPER AND SPECIE CIRCULATION. 283 

hundred and forty millions, the failures have amount- 
ed to thirty, or more than one fifth of the whole. 
Of the actual loss incurred, we can give no account. 
There are instances in which the stockholders, by 
paying for their shares in their own notes, and after- 
wards redeeming their notes with the stock in their 
name, suffered no loss, and this loss fell exclu- 
sively on the holders of notes and the depositors. In 
many cases, when the whole stock has been lost, the 
holders of notes, nevertheless, suffered a partial loss. 
In the most favorable cases, the stockholders lost a 
considerable portion of the stock, and all the debts 
will be ultimately paid. But even here, there has 
been a heavy loss to the community, the notes hav- 
ing been generally sold by the holders at depreciated 
rates, when the failure took place. We believe that 
the pecuniary loss sustained by government, on loans 
raised during the suspension of specie payments, 
and from bank failures, exceeded four millions of 
dollars." 

Now, when a currency is liable to such results, 
from fraud or folly ; that is, when skill and integrity 
must enter as an element into its goodness, the risk 
which a community sustains in the use of it, must 
certainly be placed in the list of its disadvantages. 

Nor are these evils peculiar to this country. In 
England, in the year 1793, as we are informed by 
M'Culloch, one third of the country banks stopped 
payment. And we learn, by the daily newspapers, 
that the failures of private bankers, are matters of 
very frequent occurrence. Between the years 1809 
and 1830, the number of commissions of bankrupt- 
cy issued against country bankers in England, was 
three hundred and eleven. " Exclusive of the above, 
many banks stopped payment, to the great injury of 
their creditors and the public, which afterwards re- 
sumed them; while the affairs of some bankrupt 
concerns were arranged without a commission." Yet, 
it would seem, there are means which may be de- 
vised to remedy this evil ; for he informs us that, 



284 PAPER AND SPECIE CIRCULATION. 

" during this whole period, not a single Scottish 
bank gave way" 

III. Fluctuation. In speaking of a metallic curren- 
cy, we had occasion to remark, that it was essential 
to the character of whatever was used as money, 
that it be liable, as little as possible, to fluctuation. 
Hence, vegetable products, of which the amount 
created was liable to vary under the same amount 
of labor, with the different productiveness of sea- 
sons, could never be employed as money. The rea- 
son is obvious. He who contracted debts, when 
money bore one ratio to products, would pay them 
when it bore another ratio ; and hence, though he 
might pay the same nominal amount, yet he would 
pay twice as much in value as he had promised. So, 
also, he who had loaned money while it bore one ratio, 
and received his payments while it was at anoth- 
er, though he might receive the same nominal amount, 
would not receive half the amount in value which he 
loaned. And hence, all civilized communities have 
denied to governments the right of altering, or in 
any manner interfering with, the value of coin ; for 
the reason that this cannot be effected without caus- 
ing a variation in the value of money, and thus in- 
terfering with private contracts. Were this allowa- 
ble, it is evident that credit must be at an end ; be- 
cause, whatever a contract might mean to-day, no 
one could possibly predict what it would mean to- 
morrow. Hence, all fluctuation in the value of any 
substance, renders it, by the amount of this fluctua- 
tion, unfit for the purposes of a circulating medium. 
If gold and silver were as fluctuating in value as 
cotton or wheat, they would, their bulk only except- 
ed, be as unfit for the purposes of money, as these 
substances themselves. 

Now, these remarks apply, not only to gold and 
silver, but to any thing which may be used as mo- 
ney. They apply to silver, as much as to gold, and 
to gold, as much as to silver. If either of these sub- 
stances were liable to great fluctuations in value, we 



PAPER AND SPECIE CIRCULATION. 285 

should be obliged to abandon it, and to take the 
other. If both of them were so liable, we should 
relinquish them both, and find a better substance. 
And so, if paper be used as the circulating medium, 
the case is the same. By as much as it is liable to 
sudden or to great fluctuation, by so much is it unfit 
for the purposes of money. And, when once paper 
has supplied the place of gold and silver, it becomes 
the circulating medium as truly as gold and silver 
were, when they supplied the place of copper, or 
sheep, or cattle. 

Now, the disadvantage to which, as we have said, 
paper money is exposed, is, that it is liable to sud- 
den and great fluctuations in value. 

The manner in which this occurs, is easily ex- 
plained. 

We have already shown that, in order to accom- 
plish a given amount of exchanges in a community, 
a certain amount of value is necessary ; and that no 
more than this amount of value can be employed for 
this purpose. If, to accomplish the exchanges of a 
community at a given time, one thousand ounces of 
silver, equal to one thousand bushels of wheat, are 
necessary, and twice this quantity be introduced, the 
value will remain the same, though the quantity va- 
ries ; and the result will be, that the price of money, 
in relation to other products, will fall one half ; that 
is, if we gave five dollars for a hat before, we shall 
give ten dollars now, and for other things in propor- 
tion. And, if half the quantity were removed, the 
reverse would be the case ; that is, the price of mo- 
ney would be doubled ; in other words, if we gave 
five dollars for a hat, formerly, we should give two 
dollars and fifty cents for it now ; and so of other 
productions. 

If we bear this principle in mind, we shall easily 
see the nature of the fluctuations to which paper 
money is liable. Metallic money has a natural price, 
which is not liable to any fluctuation within short 
periods. This price depends upon the cost of min- 



286 PAPER AND SPECIE CIRCULATION. 

ing, which is liable to very little variation. He who 
exchanges a thousand bushels of wheat for a thou- 
sand ounces of silver, knows that it will cost as 
much to bring an ounce of silver into the market, 
six months hence, as it does now, and hence, its cost 
being the same, it will bring for him as much of 
other products, six months hence, as it does now ; 
that is, if this be the sole medium of exchange, and 
its value be not interfered with by the use of some 
other substance. Now, paper money has no such 
natural price ; but the quantity of it in circulation 
depends, considerably, upon the hopes, wishes, and 
anticipations of men. Hence, the quantity may vary 
in almost any amount, and, as the value of the whole 
is not altered by the quantity in use, as the quantity 
increases, the value of each portion must decrease ; 
and, hence, a paper dollar may be worth twenty-five 
per cent, more or less to-day, than it was a month 
ago, or than it will be a month to come. Hence, 
though there may be the same words written upon 
the paper, and it be called by the same name, yet it 
means, to him who pays it, and to him who receives 
it, a very different thing from what it did a month 
ago. He bought three months ago a thousand bar- 
rels of flour at ten dollars a barrel, at three months 
credit. Without any change in the supply or de- 
mand for flour, he is not now able to sell it for more 
than seven dollars a barrel, while his notes for ten 
thousand dollars must be paid in full. 

This fluctuation may arise, on the part of the 
bank, innocently or viciously ; from want of skill 
and forethought ; or from want of integrity. 

I. Innocently. Suppose that, at a given period, the 
circulating medium in a community is properly pro- 
portioned to the necessities of exchange, and that 
this medium, though paper, is perfectly sound ; that 
is, that there exists, in all the banks, sufficient spe- 
cie to pay all debts of the bank on demand, in the 
precious metals. 



PAPER AND SPECIE CIRCULATION. 287 

Let, now, from any cause whatever, the produc- 
tiveness of labor be greatly increased, so that a 
much larger amount of annual products is brought 
into market. If the amount of money remain the 
same, while the amount of products is increased, the 
price of money will rise ; that is, every thing will 
be cheap. As soon as products become cheap, every 
one is anxious to buy. Merchants will be desirous 
to borrow money, with which to buy, because, when 
products are cheap, it may be reasonably expected 
that they will rise ; and, if the rise in price be great- 
er than the interest paid for money, the purchaser 
may reasonably hope to be able to repay what he 
borrowed, with interest, and yet realize a handsome 
profit. Besides, when an article is low in any coun- 
try, then is the time to export it with advantage ; 
and this prospect of increased advantage will induce 
men to borrow, in order to export, in the expectation 
that the usual profit will enable them to realize far 
more than the interest they have paid for borrowed 
capital. In such a season, every one is desirous of 
borrowing, and banks can most profitably employ 
their capital. They are called upon to loan, to the 
utmost extent of their power, both by their own in- 
terest, and by the universal wish of the public. 

Now, in such a state of things, it is not to be sup- 
posed that the directors of banks are endowed with 
greater prudence than other men, or that they are 
not as likely to be influenced by the hope of large 
dividends. The example of one stimulates the 
others. The risk that one institution runs, another 
will be willing to run. A bank will scarcely be will- 
ing to make a dividend of six per cent., while its 
neighbor is making eight. And when disconnected 
banks, all over a nation, are animated by these prin- 
ciples, it is evident that a very large amount of loans 
must be effected ; that is, a very large amount of 
paper money must be issued. But just so fast as, 
beyond the necessary amount, the quantity is in- 
creased, the value of each portion of it diminishes, 



288 PAPER AND SPECIE CIRCULATION. 

and thus prices rise ; that is, money becomes abun- 
dant, and a dollar will purchase no more than it 
would in a time of scarcity. Thus, the amount of 
the circulating medium becomes too great for the 
amount of exchanges, and money is cheaper than 
any other article in the market. 

But, we have before seen, that the cheapest article 
in the market will always be exported. As this is 
now money, money will be exported. But, as the 
bills are redeemable in specie, specie is worth no more 
than bank bills ; and, as the bills are worth nothing 
abroad, the whole exportation will be in coin. In a 
short time, a large portion of it has left the country. 
The banks then find themselves liable to pay in spe- 
cie, a vastly greater amount than they were liable to 
pay, a month or two since, and they find that they 
have much less specie wherewith to pay it; and the 
demand for specie still continues. They are, of 
course, in danger of stopping payment, and their only 
means of safety is, in diminishing their loans ; that 
is, loaning no more, and requiring payment of those 
who owe them. Hence, those who had borrowed, 
with the hope of paying by means of their sales, 
are called upon to pay, before these sales are effect- 
ed, and, as the banks refuse to loan, very few are 
disposed to buy. Thus, the debtors of the bank are 
required to pay their debts sooner than they expect- 
ed, and the means of making those payments are 
curtailed. The money goes back into the bank, and 
does not come out of it. Thus, with every day, the 
quantity of the circulating medium is diminished. 
The scarcity of money increases. The price of 
goods falls, as men will sell for lower and lower pri- 
ces, rather than lose their credit. Every man, from 
necessity, presses his neighbor, and the bank, from 
the same necessity, presses them all. And thus, in 
a few months, the amount of circulating medium is 
greatly diminished ; and money is worth twenty-five 
or fifty per cent, more than it was a short time ago. 
He who agreed to pay one thousand ounces of sil- 



PAPER AND SPECIE CIRCULATION. 289 

ver, when one ounce of silver was worth a bushel 
of wheat, pays it now, when it is worth a bushel 
and a half of wheat; that is, though he pay the 
same nominal amount, he pays fifty per cent, more 
in valued 

The result of such a state of things depends, of 
course, upon the degree of the excess of these is- 
sues. If this excess have not been great, by means 
of mutual forbearance, the scarcity passes away ; 
that is, holders of produce, being obliged to sell or 
to fail, sell at reduced prices. Thus, the price of 
money rises, and it becomes profitable to import it. 
It is then imported ; the banks are thus enabled to 
discount ; and things go on again, as usual ; with, 
however, a severe loss if not total ruin to those who 
have purchased when goods were at high prices. 

But, it is not always thus. Sometimes the pres- 
sure for money is so great, that those who have pur- 
chased products with borrowed capital, cannot sell 
them fast enough to make their payments. These 
are obliged to stop payments, or become bankrupts, 
and assign their effects to their creditors. But these 
were debtors to many others who were depending on 
the payment to be received from them, to pay their 
own debts. These, being disappointed in this ex- 
pectation, also fail. Their failure leads again to the 
failure of others, and the panic becomes general. 
No one dares to trust his neighbor, and the banks 
dare not trust any one. An universal crash of mer- 
cantile credit succeeds, and none are able to with- 
stand the shock, save those of the heaviest capital, 
and of the greatest financial ability. 

This, however, at length works its own cure. 
When a debtor fails, he assigns his property to his 
creditors ; that is, he pays them in kind, instead of 
in money. Hence, this being done, his need of mo- 

* The banks in the city of New York alone, within a few months 
lately, reduced their circulation to the amount of more than twelve 
millions of dollars. 

25 



290 PAPER AND SPECIE CIRCULATION. 

ney is over, and, by so much, diminishes the demand. 
His property is sold, at any price it will bring. This 
depresses, still more rapidly, the price of goods ; that 
is, raises the comparative value of money ; and 
hence, it will be the more readily imported. As soon 
as these causes have had time to operate ; that is, 
diminished and increased supply ; the equilibrium is 
restored, and credit is established on its ordinary 
basis. 

The method which has been sometimes resorted 
to, when banks have either viciously or innocently 
become unable to pay their bills, is to suspend specie 
payments, and then prevail upon the state legisla- 
tures to pass laws exempting them from the conse- 
quences of their failure. This expedient has been 
resorted to, for the second time within two years, by 
a great part of the banks in the United States. Al- 
though valid excuses may perhaps be rendered for 
such a course, under a universal and unexpected 
panic or calamity, there can be no doubt that the 
frequent repetition of bank suspensions must work 
the direst mischief to the community. Without 
going into the subject in detail, the following consid- 
erations are sufficient to show the nature and ten- 
dencies of such a measure. 

1. The obligations of a bank are as binding as 
those of an individual. There is no reason why it 
should be exhonorated from them more than an in-» 
dividual. If a merchant fails to pay his note to the 
bank, his credit is dishonored and he is expected to 
pay interest from the time of his failure. There 
can be no reason why a bank should n,ot abide by 
the rule which it enforces upon others. 

2. The only circumstance which gives any value 
to the bills of a bank is the assurance that they will 
be paid in specie. But if the bank is allowed, at 
will, to absolve itself from this obligation, what is 
this assurance worth. This very power conceded to 
banks would render a paper currency worthless. 

3. The only restriction upon unlimited issues of 



PAPER AND SPECIE CIRCULATION. 291 

paper money is the obligation imposed upon the 
banks to redeem their bills at sight in specie. So 
long as this is enforced, the currency could not read- 
ily become injuriously expended. If it be not en- 
forced, or if the bank may be easily sheltered from 
the results of its imprudence, a paper currency may 
be expanded inimitably. In this manner, as in the 
case of the continental money, the circulating me- 
dium may be rendered good for nothing. 

4. The tendency of frequent suspensions must be 
to drive all the specie out of the country. In conse- 
quence of over issues, prices will be kept so much 
above those of other countries, that products cannot 
be profitably exported and specie will immediately 
take its place. Thus, as soon as banks resume the 
payment of their debts, prices being high, they will 
be again compelled to suspend, and thus a few such 
examples would end in a small number of spasmo- 
dic contractions and suspensions, to be followed by a 
perpetual insolvency. 

5. As banks are at present managed, in too many 
instances, the officers of the banks themselves are 
the principal borrowers. By combination with each 
other, they may easily procure loans sufficient to 
control the price of any of the necessaries of life, 
within a large district. If, when their loans become 
due, the borrowers were obliged to make payment, 
they must relinquish their monopoly, and sell at the 
natural prices. But, if. as soon as they were called 
upon to make payment to the bank, they could sus- 
pend specie payments, it is evident that they could 
prolong their loans, and keep up prices at their will. 
The tendency of such a course is manifestly to set 
the poor against the rich for cause, a most barefaced 
oppression. 

These are a few of the most obvious reasons why 
banks should always be obliged to redeem their bills, 
in specie, and at sight. If they fail to do so the 
legislatures should not shield them, but should expose 
them to the natural action of law. A few examples 



292 PAPER AND SPECIE CIRCULATION. 

of this kind would do much to place the currency 
upon a sound basis. 

In this manner, fluctuation may arise innocently. 
And every one knows that such fluctuations are con- 
stantly occurring in the mercantile world. But what 
occurs thus innocently, is liable to occur viciously. 

II. Viciously. A bank, established in a town re- 
mote from the ordinary channels of business, or the 
banks in any one place, if combined together, as 
they furnish the paper money which is used for all 
the common purposes of exchange, have, to a con- 
siderable degree, the monopoly of the article in the 
market. Hence, by loaning very freely at one time, 
they may bring the whole district into their debt. 
When this is the case, if they see fit to curtail their 
discounts, they may reduce the amount of circulat- 
ing medium, and raise the price of money as much 
as they will. They may'thus, by enforcing payment, 
render half the population bankrupt, and possess 
themselves of their estates, at half price ; or else ob- 
lige them to pay double or treble the usual per cen- 
tage of interest. That such events have occurred, 
is, I fear, too much a matter of history. And it has 
given rise to a frequent and unwarrantable prejudice 
against banks in general. 

While, however, all this is admitted, it deserves 
to be remarked : 

1. That these disadvantages of fluctuation, both 
from unskillfulness and from fraud, do not belong 
exclusively to banks, but are liable to exist under 
any circumstances, in which money is loaned and 
borrowed. Were there no banks, and were mony to 
be loaned by private capitalists, and even to be 
loaned in specie, the same inconveniences though in 
a less degree would be liable to result ; for men are 
always tempted to borrow to-day, more than they 
will be able to pay to-morrow. And it is evident 
that collusion, for the sake of raising the rate of in- 
terest, is at least as liable to occur between individ- 
ual money-lenders, as between banks. It is my im- 



PAPER AND SPECIE CIRCULATION. 293 

pression that it more frequently occurs, inasmuch as 
it is more difficult of detection. 

2. The blame, when such a state of things as has 
been described, exists, is always laid upon the banks. 
This is manifestly unjust. It belongs to the borrow- 
er, just as much as it does to the lender. Men are 
very willing to borrow, but they very commonly call 
upon the community for great commisseration, when 
they are obliged to pay. I by no means object to 
the extension of any commisseration which may be 
convenient, but it would be a very inconvenient ex- 
tension of it, if it released a man from the obliga- 
tion to refund what he had borrowed, and, by the 
use of which, he has already, perhaps, realized a 
handsome revenue. The bank, by enforcing pay- 
ments in a time of pressure, is really doing a great 
service to the community. This is evident. If the 
debts due to the banks were not paid, the banks 
would fail. In this case, not only the stockholders 
themselves, but every one else would be ruined. So 
that, if, by their exacting punctuality, some persons 
fail, it is still better that a few persons than that the 
whole community should be ruined. 

3. Again : In a time of scarcity, banks are sadly 
abused, because they will not loan more money. A 
bank, if it be honest, and mean to pay its debts, has 
its limit, which it cannot safely pass, as truly as an 
individual. When it has arrived at this limit, its 
loans must cease. A merchant who has involved 
himself in large transactions, expecting that he could 
borrow as much as he chose, is now disappointed, 
because his expectations are not realized. But what 
reason has he to complain ? The bank never pro- 
mised to lend him, when it had nothing to lend ; nor 
to ruin itself, for the sake of saving him from the 
consequences of his own headlong improvidence ; 
specially, when by doing this, it must involve not 
only itself, but him also in ruin. The bank was no 
party to his engagements ; it derives no benefit from 

25* 



294 PAPER AND SPECIF CIRCULATION. 

them, and it is under no obligation to enable him to 
fulfil them. The only remedy for these evils man- 
ifestly is, for both parties to be willing to grow rich 
more slowly, and thus to assume less formidable 
risks. When a whole community has run into trans- 
actions beyond its means, and has become embar- 
rassed, there is very little gained by the abuse of 
banks and of bank directors. 

But, whatever maybe the advantages or disadvan- 
tages of a paper currency, one thing is certain, that 
it has, in all actively commercial countries, taken 
the place of a specie currency. This is a sufficient 
reason to believe that it is the more convenient cir- 
culating medium. It would not be so universally 
chosen, unless it were found to answer a better pur- 
pose than specie, and if it be found to answer a bet- 
ter purpose, it ought to be chosen. 

If these remarks be just, there will follow several 
very obvious conclusions. 

1. That to lend money is just as necessary to the 
good of the community, and is, therefore, as inno- 
cent and as honorable as to borrow it. 

2. That an institution, organized for the purpose 
of lending money, is, so far as its object is concerned, 
as beneficial to the community, as innocent, and as 
honorable as any other institution. 

3. That a lender of money is liable to be dishon- 
est and unskillful ; but that-^C a borrower of money 
is also liable to be dishonest and unskillful. 

4. And hence, that the one, as much as the other, 
is entitled to all the benefits of equal laws, and the 
fair and unbiassed execution of them. If a bank 
conduct itself dishonestly, this is a reason why it 
should be dealt with according to just and equitable 
law ; but it is not a reason why all the capital of 
the country should be oppressed, and every capital- 
ist insulted. A carpenter may be dishonest ; and 
this is a reason why he should be dealt with ac- 
cording to just and equitable law ; but it is no rea- 



AGENCY OF GOVERNMENT. 295 

son why every carpenter should be oppressed, and 
his calling made a cause of opprobium. The 
principle which applies to the one case, applies 
equally to the other. 



SECTION IV. 

OF THE AGENCY OF SOCIETY, THAT IS, OF GOVERNMENT, 
IN RESPECT TO A PAPER CIRCULATION. 

I have already remarked, when treating of specie 
circulation, that coin was employed as a circulating 
medium, not in consequence of the act of a govern- 
ment, or of the stamp which it bore, but simply in 
consequence of its adaptedness to be employed for 
this purpose, and of the universal desire of the com- 
munity so to employ it ; and also, that the whole 
agency of the government is properly limited to the 
making of those arragements which would enable 
it to accomplish this purpose the most successfully ; 
that what substance a community should employ, is 
none of the concern of the government; its only 
concern being, so to prepare the substance employed, 
that it may be used with the greatest common ad- 
vantage. 

Now the same remarks manifestly apply to what- 
ever may be used as a circulating medium, whether 
it be gold and silver, or paper. Hence, 

1. A government has no right to interfere with 
this question, and enact any law, or take any meas- 
ures in regard to it. If the people choose to use a 
paper currency, instead of a metallic currency, they 
have a right to use it, and no one, either individual 
or associated, has any right to control that use. If I 
present a check to a bank, and they offer me in pay- 
ment either specie or bills, and I choose to take their 



296 AGENCY OF GOVERNMENT. 

bills, it is a matter wholly of my own concern. I ask 
permission to make this choice, of no one on earth. 
If I have a thousand dollars to pay in New Or- 
leans, and I choose to take the bill or the draft of a 
bank, and send this in payment instead of the thou- 
sand dollars in silver, and my creditor receive it in 
payment, if both he and I are satisfied, no one has a 
right to interfere. And if any one, whether indi- 
vidual or society, whether government, judicial, leg- 
islative, or executive, see fit to interfere, my only 
and sufficient reply to each and to all of them is, 
that it is, distinctly and particularly, none of their 
business. 

2. But, although a community may choose a pa- 
per instead of a metallic currency, and although 
they have a right to choose it ; neither any commu- 
nity, nor any individual of a community, chooses 
either a worthless or a fluctuating currency. While, 
therefore, a government has no right to enact, that a 
currency shall be any thing else than the people wish 
it to be, they have a right to take all proper 
means to make it such as the people wish it to be. 
Hence, 

1. They have a right to take such means as will 
be likely to give all reasonable security to a paper 
currency. These means have respect, in general, to 
the liability of directors and stockholders to redeem 
their bills. In what manner this security can be 
best effected, it must be left to practical men to de- 
cide. In some cases, all the property of all the stock- 
holders is rendered liable for the debts of the bank. 
This would commonly be a perfect guarantee. In 
other cases, I believe, tlie property only of the di- 
rectors is held liable. In what way soever security 
can be best and most equitably effected, I think a 
government has a right to effect it. 

2. A government has a right to take all reasona- 
ble means to diminish the fluctuation of a paper cur- 
rency. We have seen that, inasmuch as the banks 
promise to redeem their bills in specie, the amount 



AGENCY OF GOVERNMENT. 297 

of paper which they may safely issue must always 
depend upon the amount of specie in a country. 
Fluctuations in the amount of paper must follow 
fluctuation in the amount of specie. This fluctua- 
tion will always be less, when the proportion of spe- 
cie to paper is great, and vice versa. One method, 
therefore, of preventing this evil, is, so to construct 
the currency, that the proportion of specie to paper 
shall be too great to be effected by any thing but large 
and long continued exportations of the precious met- 
als. This result may be in part effected by the pro- 
hibition of the issue of small bills. This will, by 
necessity, place in the hands of every individual, 
specie for every amount which he may hold of less 
value than the lowest note issued. Were no bank in 
this country to issue notes of a less denomination 
than five or ten dollars, most of the sums held by 
individuals, in notes of one, two, and three dollars, 
would be in silver. If every individual of the 
twelve millions in the United States, possessed two 
dollars more in specie than at present, this would 
amount to twenty-four millions more of specie than 
we now possess. This would, of itself, be sufficient 
to prevent the evil arising from any ordinary fluc- 
tuation. 

In addition to this, I suppose that an" exact account 
should be kept, and at short periods made public, of 
the amount of specie imported and exported. This 
would give to the banks, timely notice of the dan- 
ger, and, at the first intimation of excessive issues, 
they might curtail their discounts, in season to avert 
the evil before it became excessive and remediless. 

So far as I can discover, the power of a govern- 
ment over a paper currency, is conferred solely for 
the accomplishment of these two objects ; and, of 
course, it is restricted to the accomplishment of these 
two objects. A government has no right to interfere 
with it, for any other purpose. It has, for instance, 
no right to interfere with the currency, because the 
people import too much, or because they import too 



298 AGENCY OF GOVERNMENT. 

little, because they buy too much land, or because 
they buy too little land, because they over-trade, or 
because they under-trade. Its power Avas conferred 
for no such purpose, and to use it for such purpose, 
is usurpation. To all such interference, the proper 
answer to be given by the individual to the govern- 
ment, is, that all this is none of your business. 

But, other grounds for legislative interference with 
banking institutions are assumed, which, if correctly 
assumed, are of a very extraordinary tendency. 
Some of these, it may be proper for us briefly to 
consider. For instance, it is said, that banks are the 
creatures of the legislature ; and that bank directors 
are the agents of the legislature ; and, therefore, 
that a legislature may rightfully exercise over them 
any authority which it chooses ; and may impose 
upon them such laws as it sees fit. Such an as- 
sumption as this, deserves at least a passing notice. 

1. It is asserted that a bank is the creature of the 
legislature ; and, therefore, that a legislature may 
rightfully impose upon its creature such laws, and 
subject it to such jurisdiction, as it pleases. 

The assertion is somewhat figurative. What is 
meant when it is said that a bank is a creature of 
the legislature ? In what does a banking company 
differ from a banking individual? The only differ- 
ence, that I can discover, is, that one is incorporated 
by a legislative act, the other is not. 

What, then, is an act of incorporation ? It is 
merely a power granted by a legislature, to severaL 
individuals, to do, as a society, some innocent act, 
which they may thus do more conveniently, but which 
any one of them might, if he saw fit, do without 
any act of the legislature. I say some innocent act, 
for what is not innocent, should be allowed neither 
to individuals nor to societies. 

The necessity of such a provision is manifest. 
Many innocent purposes can be accomplished, only 
by many persons associated together. Such are 
purposes of charity, of science, of internal improve- 



LEGISLATIVE POWER OVER BANKS. 299 

nient, and many others. Without corporate powers, 
persons so associated could neither hold property, 
nor enforce any regulations upon each other ; and, 
besides, without them, they could not be known in 
law, nor could a creditor have any claim upon the 
property which they might hold. Hence, when in- 
dividuals wish to be associated for any innocent pur- 
pose, they may claim an act of incorporation as a 
right ; and it is necessary, for the protection of the 
community, that it should be granted. And hence, 
from both of these considerations, it is incumbent 
upon a legislature to grant it. The simple principle 
involved is this : Is this an innocent means of pro- 
moting my own happiness ? If it be, society is un- 
der obligation to afford it to me. 

Sometimes, the corporate power is conferred by a 
separate act, in every individual case ; at other times, 
a general law is passed, empowering any individuals to 
become a corporate body, by conforming to specified 
conditions. Under the latter case, come the laws 
of partnerships in general ; or, more particularly the 
law of limited partnerships, of the State of New 
York. By this last act, any number of individuals 
may unite in business, and be liable in no greater 
amount than they have contributed ; that is, to all 
intents and purposes may become a corporation, by 
complying with certain conditions. Such is also the 
case with ecclesiastical corporations in that State. 

Now, in what manner soever this is done, its ef- 
fect is simply this : It gives to certain persons asso- 
ciated together, under certain circumstances, the 
power to act in the same manner as an individual 
might act, and places them under the same respon- 
sibilities as those under which an individual is 
placed. This is the meaning of an act of incorpo- 
ration. And to make heavy charges, and exact bo- 
nuses for the passing of such an act, is unjust and 
oppressive. A man might as well be charged for 
the right of trial by jury. 



300 LEGISLATIVE POWER OVER BANKS. 

This, then, is the meaning of an act of incor- 
poration, and this is what is really meant by the fig- 
urative and mysterious terms, " a creature of the 
legislature.'''' If then, a legislature possess unlimit- 
ed power over a ba?ik, because it has received an 
act of incorporation, it possesses the same unlimited 
power over all its creatures ; that is, over every th ing 
that is incorporated. If the power exist, and exist 
for this reason, it exists in every case to which the 
reason applies. Thus, he who owns a manufactory 
alo?ie, may conduct it as he pleases, and buy and 
sell when he chooses ; subject only to the ordinary 
laws of the land. But, if ten men become incorpo- 
rated, as a manufacturing company, they are under 
the unlimited power of the legislature ; and the leg- 
islature has an uncontrolled right to say when, and 
where, and of whom they must buy ; and when, 
where, and to whom they must sell ; or whether they 
may buy or sell at all. Or, again : An individual 
has the right to worship God as he pleases. But, if 
several individuals wish to unite together in the 
worship of God, and, for their own convenience, de- 
sire to be incorporated for the promotion of this ob- 
ject, their rights of conscience cease ; and, after they 
have erected their house of worship, a legislature 
may shut it up, command them to worship when 
and how it pleases, or may command them to wor- 
ship Mahomet or Juggernaut ; and all this is no op- 
pression, but is a matter of simple, honest, common- 
sense justice ; because these individuals have, for 
their own convenience, and for the security of others, 
become in law a corporate body ! 

But even this is not all. Legislation never confers 
any right whatever ; it only confirms those rights 
which previously existed. A legislative act can con- 
firm me in the possession of a house which is my 
own property ; but it can give me no right to take 
possession of a house which is the property of my 
neighbor. In the case of corporations, the same 
principle holds. A legislative act, only defines and 



LEGISLATIVE POWER OVER BANKS. 301 

establishes for several individuals, a right which 
they previously possessed. But the case is the same 
with almost all the rest of our possessions. We hold 
them under laws by which our right is defined and 
established. So that, upon this principle, every man 
is the creature of the legislature ; that is, a legisla- 
ture is the fountain of all power, the creator of all 
right, and deals out to its creatures and vassals, 
whatever of liberty or of possession it sees fit to con- 
fer. This is, surely, a novel doctrine to advance in 
the audience of a free people ; and whenever it is 
advanced, the time has manifestly arrived, for a 
people which intends to continue free, to turn their 
attention to the consideration of first principles. 

The simple truth in the case must be at once ap- 
parent. An act of incorporation, has no other ef- 
fect, per se, than to place a society under the same 
protection as individuals, and subject it to the same 
responsibilities as individuals ; that is, to place it 
under the common and universal laws of the land. 
If, together with this, a corporation enters into a con- 
tract with the legislature to do certain acts, this is 
another affair, and is subsequent to, and different 
from, the act of incorporation. By such contracts, 
both parties are equally holden. But this makes the 
corporation no more a creature of the legislature, 
than it makes the legislature a creature of the cor- 
poration. A legislature may agree with a contrac- 
tor to build a wall ; but this makes the builder in no 
respect a creature of the legislature ; nor does it give 
them power over him in any other respect, than to 
oblige him to fulfil his contract, according to the 
laws of the land. 

But it is also asserted, that bank directors are the 
agents of the government, or of the legislature, and 
hence, that they are under the unlimited control of 
the government, which is the principal. The reason 
for this assertion is, that the government has the 
right to control the circulating medium ; that paper 
money is the circulating medium ; that bank direc- 
26 



302 LEGISLATIVE POWER OVER BANKS. 

tors issue paper money; and that, therefore, they 
are under the control of the government. 
To this, it may be replied : 

1. The control of the government over the circu- 
lating medium, is limited in degree ; and even with- 
in this degree, it is limited by the object for which it 
may be exerted. A government has a right to enact 
such laws as may insure the payment of the debts 
of a bank, as well as of all other debts, and as may 
prevent excessive fluctuation in the circulating me- 
dium ; that is, they ' have a right to take care that 
the circulating medium be sound and convenient, but, 
I see not that they have any other right over it. And 
this right is equally limited, whether the circulating 
medium be paper or money. 

2. Suppose bank directors to issue this circulating 
medium, and that, on that ground, they are un- 
der the control of a legislature ; they are then 
under its control only within the limits, and for the 
purposes above specified ; that is, they are to be 
placed under the general laws for the regulation of 
the circulating medium. To exert any other power, 
or to exert a power for any other purpose, is tyranny. 

3. But let us inquire in what sense bank directors 
are agents of government. The government, in 
their case, as in many others, requires, and has a 
right to require, that, in the conduct of their busi- 
ness, they shall conform to certain principles, made 
necessary for the good of the whole. But does this 
render them agents of the government'? He who 
sells gunpowder, is obliged to sell it under special 
regulations 1 but is he, on this account, an agent of 
government'? Every man, who buys or sells at all, 
buys or sells under some regulations of a legisla- 
ture ; but is he, on this account, their agent, over 
whom they have the right of unlimited control 1 

But, take a still more analogous case. Suppose 
an individual, or a mining company, to obtain from 
their mines, one hundred thousand dollars a year. 
This they appropriate to the business of loans. 
They have, however, no right to coin it themselves, 



LEGISLATIVE POWER OVER BANKS. 303 

but must have it coined at the mint; that is, if they 
be a company, they must be incorporated, in order 
to carry their purposes into effect ; and they must 
carry them into effect, subject to such rules as the 
good of the whole may demand. But does this ren- 
der them, or their directors, the agents of govern- 
ment? or does this give to the government any 
other power, than that which it exercises over any 
other individual 1 

Suppose, now, several individuals have obtained 
one hundred thousand dollars in any other way than 
by mining, and that they wish to employ it in the 
business of loaning. They are under obligations to 
conform to the general laws made for the regulation 
of the circulating medium, but this is all. They do 
not, in this manner, become the agents of govern- 
ment, any more by loaning, than by doing any thing- 
else-. And suppose that their customers prefer to 
borrow paper, .instead of metallic money. If they 
issue paper, they are under obligation to issue it in 
obedience to the laws enacted for the purpose of in- 
suring its goodness and stability ; but they are not, 
on this account, the agents of government, nor has 
the government any more power over them than it 
has over any other individuals. It seems to me, 
therefore, that the second assertion, namely, that 
bank directors are the agents of the government, is 
wholly gratuitous. 

But it is said, that the banks have a monopoly of 
this article, money ; and that, therefore, they are, of 
right, subject to particular legislation. To this, I 
reply; who creates this monopoly ? Certainly not 
the banks, but the legislature themselves. If the 
legislature refuse banking privileges to those who 
deserve them, or grant them under such terms, that 
'but few persons can accept of them, and thus di- 
minish the amount of banking capital, and render 
it inadequate to the wants of the community, they 
are the authors of the monopoly; and ,they may 
not plead their own wrong, as an excuse for in- 



304 LEGISLATIVE POWER OVER BANKS. 

justice.* Were they to oblige a shoemaker to pay 
ten thousand dollars for the privilege of exercising 
his profession, and then, because there were but one 
or two shoemakers in a city, undertake to regulate 
his business, interfere with his concerns, and fleece 
him over again, on the ground that he possessed a 
monopoly ; we should speak very mildly of such 
legislation, when we called it oppression and tyran- 
ny. He would very naturally say : "I do not ask 
you for your monopoly. It is all of your own im- 
posing. It is a creature of the legislature. Let every 
one who chooses, make shoes, subject only to the 
common laws of the land, and both the monopoly, 
and your reasons for interfering with me in conse- 
quence of it, will cease together." And the case is 



* The fact, no less notorious than disgraceful, is, that, in many 
of our States, bank charters are granted or denied for purely po- 
litical reasons. They are reserved as the reward for services done 
to the dominant party. Hence, one half of ihe community at once 
is, by this policy, excluded from the privilege of employing their 
capital in this manner. The charters thus granted, are frequently 
granted not to those who are possessed of the necessary capital, but 
to those who have promoted an election. It is manifest, that neith- 
er activity nor skill, in political intrigue, will add any thing to the 
value of a bill, or afford any guaranty for the honest management 
of a bank. If, however, as is frequently the case, the applicants 
do not wish to hold the shares themselves, they sell them at an ad- 
vance, before any of the capital has been paid, to persons of the 
other party. These last, therefore, are obliged to pay this advance, 
as a bonus to those who have obtained the charter ; and thus, their 
property is taxed at the outset, to reward the industrious partisan. 
This advance, by its whole amount, reduces the value of banking 
capital, and prevents men from so investing their property. In 
this manner, the monopoly is created ; and thus, very commonly, 
are spurious banks brought into existence. It will be found, I be- 
lieve, in the greater number of instances in which fraud has been 
detected in the management of banks, that they have been banks 
which have been decidedly partisan in their character. The evils 
resulting from this system are, however, all charged upon banks 
and bank directors. No one thinks of arraigning the legislature, 
from which all these evils truly cminatc. In some of tho States, 
banking capital is taxed so heavily, that it will not yield a fair profit 
if honestly conducted. Men of character and capital, therefore 
abandon banking, and the stock falls into the hands of the less 
scrupulous. 



LEGISLATIVE POWER OVER BANKS. 305 

the same. with banks. Let all banking be governed 
by principles which shall insure the security of the 
community, and then let banks be multiplied at will. 
If they yield more than an average profit, they will 
thus be increased until their profit is reduced to that 
of other business. If they yield less, they will be 
diminished, until they merely supply the wants of 
the community. Thus, the monopoly, and the rea- 
son for oppression founded on it, will terminate to- 
gether. 

I have pursued this subject to a greater extent 
than I should otherwise have done, were it not that 
a very general disposition exists, and has always ex- 
isted, to interfere with the rights of capital ; and be- 
cause no country can long be prosperous, where 
these rights are not respected. Men too frequently 
assume, that capital, devoted to the purposes of 
loaning, is owned by the rich ; that, by overtaxing 
and oppressing it, the rich only suffer ; and, as the 
rich are always the minority, they must bear it, 
without any redress. Now, setting aside the equity 
of such a notion, it is still proper to remark, that 
there is nothing, which so readily eludes the grasp 
of oppression, as capital of this kind. It is, of all 
capital, the most easily transferred. If oppressed, 
it will be transferred to more congenial climates ; the 
industry of the country from which it has been re- 
moved will languish ; its population will diminish ; 
and the majority will find, too late, that the blow 
which was aimed at the minority has recoiled upon 
themselves. There is no better policy, either for 
nations or for individuals, than strict and even- 
handed justice. 

The course of legislation with respect to banks 
has too frequently been at direct variance with the 
principles of political economy. By charging ex- 
cessive bonuses for charters, and imposing exces- 
sive taxes upon stocks, they have taught banks the 
lesson of injustice. While they have been doing 
26* 



306 LEGISLATIVE POWER OVER BANKS. 

this, however, they have generally been willing to 
defend banks from the consequences of suspension, 
and continue their charters while they violate their 
chartered obligations. The language of this con- 
duct, when' truly expounded, is simply this,' Let 
us fleece you and you may fleece the public. 



BOOK THIRD 



DISTRIBUTION 



We have seen that, in order to the creation of val- 
ue, it is necessary that labor be united to capital. In 
some cases, both of these are the property of the 
same individual ; that is, the same person both owns 
the capital and performs the labor. In by far the 
greater number of instances, however, they are the 
property of different individuals; that is, one per- 
son owns the capital, and another person performs 
the labor. As, when the same person owns both la- 
bor and capital, the whole increase of value becomes 
his exclusive property ; so, when these belong to 
different individuals, the value belongs to them in 
common; that is, a share of it is the portion of 
each. 

If, then, profit arise from any operation in indus- 
try, which has been the joint result of the labor of 
one man, and the capital of another man, it is a 
matter of some consequence to ascertain the princi- 
ples, on which the division of this profit, or the dis- 
tribution, shall be effected. And, besides, in every 
important operation, a great variety of laborers, is, 
of necessity, employed ; and of these laborers, the 
skill and talents are very dissimilar. To these dif- 
ferent persons, very different proportions of the profit, 
equitably belong. And, also, the value of the capi- 



308 DISTRIBUTION. 

tal thus employed, may be different at different times, 
and in different occupations. Hence, there will arise 
a difference in the proportion of profit which shall, 
at different times, be assigned to a given amount of 
capital. And, if it be said, that the remuneration in 
these cases is always arranged among men by mu- 
tual consent ; it may be still important to ascertain 
the principles, on which this mutual consent is 
founded. 

This book would, therefore, naturally be divided 
into two parts : First, Wages, or the price of labor ; 
and, Secondly, Interest, or the price of capital But, 
inasmuch as Land is a form of capital, in some 
measure peculiar, it may be more convenient to con- 
sider it separately. We shall, therefore, divide the 
present book into three chapters. 

I. Wages, or the price of Labor. 

II. Interest, or the price of Money. 

III. Rent, or the price of Land. 



CHAPTER FIRST. 

OF WAGES, OR THE PRICE OF LABOR. 

In this chapter, I shall consider, 1st. The general 
principles of wages ; and, 2dly. The special circum-* 
stances, by which those principles are modified. 



SECTION I. 

THE GENERAL PRINCIPLES OF WAGES. 

The price of any thing, is its exchangeable value 7 
expressed in the form of money. 

Exchangeable value, is cost, plus the effect of 
supply and demand. 

In order, therefore, to understand the exchangea- 
ble value of labor, we must consider, 1st. Its cost; 
and, 2dly. The effect of supply and demand upon it. 

I. Of the Cost of Labor. 

Labor may be divided into two kinds : 1st. Simple 
labor, or that which is unconnected with previously 
acquired skill ; and, 2dly. Educated labor, or that, 
in which industry is combined with the results of 
previous education. 

First. Of Simple Labor. 

In order to produce this, all that is necessary is 
muscular strength, resulting from a properly formed 
body, and a sound mind, in ordinary health. 

But, in order to the production of health and mus- 
cular strength, it is necessary that the human being 
be supplied with food, clothing, shelter, and, at times, 



310 GENERAL PRINCIPLES OF WAGES. 

with medicine and medical attendance. If a man 
have nothing to eat to-day, he cannot labor to-mor- 
row. If, for a few days, he be deprived of food, he 
will inevitably die. If his food be insufficient in 
quantity, or of improper quality, his strength will 
diminish, and, of course, the muscular efforts, of 
which he would be otherwise capable, will be de- 
creased. If this be continued but for a very short 
time, he will become sick, and thus lose the power 
of laboring altogether. If he be not relieved, he will 
die. Hence we see, that there is a natural minimum 
of the cost of labor. The least cost, is that which is 
sufficient to give the laborer all the necessaries of 
life. If we give less, we not only diminish the pow- 
er of labor, but, in a short time, take it away al- 
together. Hence, the minimum price of wages, does 
not depend upon the will of employers, but upon 
those physiological laws which regulate the exis- 
tence of man. 

2. But, this is not all. Man is short-lived. The 
species is kept in existence by succession. Unless 
children be reared, the race would soon become ex- 
tinct. And children are, for several years, not only 
unable to earn any thing towards their own support, 
but they also require a large portion of the time and 
labor of the parent. A mother, who has the care of 
several children, and who also provides for the do- 
mestic wants of her family, is rarely capable of 
much additional labor. Hence, in order to keep the 
number of laborers the same, in any particular coun- 
try, it is necessary that the parent or parents receive 
sufficient wages, not only to provide food, clothing, 
and shelter for themselves, but, also, for at least two 
children, until the children are able to support them- 
selves. 

3. But, this is not all. The life of man is often 
prolonged beyond the period of active labor. In old 
age, a man is either utterly disqualified for labor, or 
else his labor is insufficient to support him. Hence, 
he must either be supported by his children, or else 



GENERAL PRINCIPLES OF WAGES. 311 

lie must, when in his full strength, have accumula- 
ted sufficient property to support him in his decrepi- 
tude. Hence, the wages of labor must be sufficient, 
not only to support the laborer, and at least two 
children, but also to provide for, or to sustain him, 
in old age, when the power of labor is exhausted. 

If so much as this be earned by the laborer, the 
population of a country may remain stationary. If 
two children be reared by every human pair, these 
will supply, but will no more than siqyply, the rava- 
ges of death. This, therefore, is manifestly the low- 
est price of labor. If wages do not equal the amount 
necessary for this result, men will become sick, and 
will die ; a less proportion of children than this will 
be reared ; and population Avill diminish. The low- 
est price at which the labor of any animal can be 
procured, is the cost of rearing him, and of maintain- 
ing him in health and vigor. 

But, it is the fact, that the natural rate of the pro- 
ductiveness of the human species is more rapid than 
that of two children to two parents. In favorable 
circumstances, two parents frequently rear six, eight, 
or ten children. The number of children who are 
born, does not depend upon the circumstances of the 
parents. More children are commonly born to the 
poor, than to the rich. The rich are often childless ; 
the poor, very rarely. But, suppose that the labor- 
er receive only sufficient wages to enable him to 
support himself and wife, and two children ; and 
that his family amount to six or eight human beings, 
it is manifest that some of them must perish. The 
food of two, will not sustain six or eight. The others 
must starve, or, in some way or other, die of want. 
The manner in which this occurs, it is painful to 
contemplate ; though, in most of the older countries, 
it is frequently seen. The pressure, in such a case, 
must fall upon either the parent or the child, and 
parental affection generally decides upon which it 
shall fall first. When parental affection is strong, the 
parent denies himself the necessaries of life, in or- 



312 NATURAL COST OF LABOR. 

der. to support his children, until his constitution, 
worn down by improper and insufficient food, sinks 
beneath the burden, and he dies in middle age, leav- 
ing his children helpless. When the parental feeling is 
less acute, the suffering falls directly upon the children. 
Their food being scanty and unhealthy, but few sur~ 
vive early infancy ; and those who do survive it, grow 
up feeble and unhealthy. A human infant is a tender 
plant, easily cut down, and liable to frequent dis- 
eases. Measles, whooping-cough, croup, teething, 
acute and chronic complaints of the lungs, head, 
and abdominal viscera, require assiduous attention, 
warm clothing, and suitable food for the patient, or 
else its chance of living is very small. When chil- 
dren, ill-fed, ill-clothed, and without medicine and 
• medical attendance, are attacked by these diseases, 
they die by thousands. When a portion of a family 
is thus removed by death, a larger portion of the 
necessaries of life remains for those who survive ; 
and, thus, their chance of life is increased. Thus, 
out of a very great number of births, frequently, but 
two or three children are reared. And this view of 
the subject is abundantly supported by facts. 
Adam Smith informs us, that it is no uncommon 
thing to see a woman, in the Highlands of Scotland, 
who has borne twenty children, of whom not more 
than two have arrived at adult years. The same 
author adds, that, although the children born in mili- 
tary baracks are numerous and apparently healthy, 
yet, officers have informed him, that rarely enough 
of them are reared, to supply the regiments with 
drummers and fifers. 

Now, we can scarely suppose that to be the con- 
dition of man which his Creator intended, in which 
so large a number perish in infancy, from suffering, 
from hardship, and from want. Hence, I suppose 
the natural cost of labor, or, that cost which corres- 
ponds with the proper condition of man, would be 
that which allows of the rearing of such a number 



NATURAL COST OF LABOR. 313 

of children as naturally falls to the lot of the hu- 
man race. This, however, pre-supposes the labor- 
ers to be industrious, virtuous and frugal. If they 
be improvident, indolent, intemperate and profligate, 
and thus either do not earn a competency, or else, 
having earned it, squander it in vice, the fault lies, 
not in their wages, but in themselves. Of course, the 
correction must come, not from a change in wages, 
but from a change in habits. 

It is, however, here to be remarked, that what is 
necessary to the sustentation and comfort of a hu- 
man being, differs greatly in different climates. In 
northern latitudes, human beings seem to need a 
larger portion of animal food, in order to endure la- 
bor. The Esquimaux live upon animal food entire- 
ly, and Sir E. Parry informs us, that, while winter- 
ing at the north pole, he observed that the appetite of 
both his officers and men was much stronger than 
usual, not only for animal food, but for animal food 
of the richest and most nutritious description. And 
as animal, is more expensive than vegetable food, the 
northern laborer, on this account, is more expensive 
than the southern. Again : In cold climates, cloth- 
ing is much more expensive. A laborer must use 
both winter and summer clothing; it must protect 
him from the cold and wet, or he will become sick 
and die. In cold climates, much more expense is 
incurred, in the erection of houses. A conifortable 
house, in a northern country, costs the labor of sev- 
eral men for several weeks, and of some men of 
considerable skill. In India, a day or two are suf- 
ficient to erect a bamboo-house, which, in that cli- 
mate, answers tolerably well for the purposes of a 
habitation. And, besides this, in a cold climate, 
fuel, which must be used from three to nine months 
in the year, is a very great item in the bill of an- 
nual expense. In warm countries, fuel is used for 
no other purpose than that of cooking ; and for this 
purpose, there, a very small quantity suffices. 
27 



314 NATURAL COST OF LABOK. 

These circumstances are sufficient to account, in 
part, for the different prices of labor, in southern In- 
dia, and in the northern parts of Europe, and of the 
United States. Laborers in Batavia are hired for 
four cents a day ; and, in India, I believe, they are 
hired for a less sum. This would scarcely pay for 
the fuel, with which the meals of a northern laborer 
are cooked. 

It would seem, at first view, from these facts, that 
laborers in southern latitudes would have a great 
advantage over those at the north, and must, of ne- 
cessity, undersell them in every thing. But such 
seems not to be the case. The enervating nature of 
the climate, unfits them for labor ; and indisposes 
them to the putting forth of intellectual skill. Hence 
it is, that this labor is mere feeble muscular force, 
accompanied by scarcely any of the advantages de- 
rived from natural agents. The rigors of a northern 
latitude, compel men to invention, and invigorate 
them for continued effort. Hence, although a nor- 
thern laborer receives one dollar, or one dollar and 
fifty cents per day, and the Hindoo receives only 
four cents, yet the former is, in fact, the cheaper 
laborer ; that is, it is the most economical to employ 
him. And the evidence of this is seen in the fact, 
that raw cotton is, at present, carried from India, 
manufactured in Great Britain, and then, carried 
back to India, and sold cheaper than it can be made 
in India by the native workmen. 

Secondly. I have, thus far, treated only of the 
cost of simple labor ; that is, of labor with which no 
such skill is united, as requires a previous education. 

But, this is only a part of the labor which is em- 
ployed by man. A large portion of it, requires spe- 
cial and peculiar training. This, of course, adds to 
its cost. Suppose, as I have already stated, that the 
natural price of simple labor were merely sufficient 
to sustain a family, consisting of the ordinary num- 
ber of persons. A man would, therefore, by labor, 
without any education, under such circumstances, 



NATURAL COST OF LABOR. 315 

earn this amount. But, if another labored for the 
same number of hours, but labored at an operation 
which he could not learn to perform, without spend- 
ing six or seven years in acquiring an education, it 
is manifest that the second would be entitled to ad- 
ditional wages. Thus, suppose the laborer must 
spend seven years in acquiring a knowledge of his 
trade. During this time he is earning nothing. Now 
his wages, at compound interest, if he had been at 
profitable labor, would amount to a considerable sum, 
specially if they had been invested in capital, which 
might have been united with his own labor. He is 
entitled, therefore, to such an addition to his wages, 
as would pay the interest upon this amount. Be- 
sides, in many cases, the learner not only earns 
nothing, but is obliged to board and clothe himself. 
This amount is to be added to the capital which he 
has expended, and for which his wages should pay 
the interest. Nor is this all. The learner is frequent- 
ly obliged to pay a large sum for instruction. This, 
also, is to be added to his investment, for which he 
is to be paid when we employ him. Thus, in the 
learned professions, a student is obliged, commonly, 
to spend two or three years in preparing for college, 
to spend four years in college, and three years in 
professional studies, before he is permitted to prac- 
tice. During the whole of these nine or ten years, 
in which he earns nothing, he must be fed, clothed 
and furnished with books, and must pay a very con- 
siderable sum to his instructors for tuition. He must, 
in most cases, also possess the means to meet all 
these expenses, before he commences. Now, had he 
used such a sum skilfully, from the time at which 
he commenced, to that at which he concluded his 
studies, it would have amounted to a small compe- 
tency. He is, therefore, fairly entitled, in addition 
to the price of simple labor, to such wages as would 
pay the interest of whatever such a sum would have 
amounted, to, had it been used with ordinary skill, 



316 SUPPLY AND DEMAND FOR LABOR. 

Wages, which, in addition to the price of simple 
labor, would pay the interest of whatever is expend- 
ed in procuring the necessary education, would 
hence be the lowest cost of such labor. And, it is 
manifest, also, that these should vary with the cost 
of the investment necessary for acquiring the skill. 
Thus, the wages of him who was obliged to sustain 
himself while a learner should be higher than those 
of him, who, though he earned nothing, was board- 
ed and clothed by his teacher. The wages of him 
who was obliged to pay for his tuition, should be 
higher than those of him, who, though he boarded 
and lodged himself, received his tuition for his ser- 
vices. And, if such wages be not generally paid, 
such labor will not ordinarily be produced. Parents 
who have capital to bestow upon their children, are 
generally desirous of investing it to the best advan- 
tage. If the capital necessary to furnish a profes- 
sional educatiorij will not improve the condition of 
a child, the parent will not invest the money in a 
professional education, but Avill employ it, for the 
advantage of his child, in some other way. In this 
manner, the supply of such labor will be diminish- 
ed, until necessity obliges men to offer greater in- 
ducements to produce it. 

II. Of the supply and demand for simple and ed- 
ucated Labor. 

First. Of the supply of Simple Labor. I have 
before stated that the number of children bom, does 
not depend either upon the riches or the poverty of 
the parents ; but that the number born, is generally 
greater among the poor, than among the rich. I have 
also stated, however, that the number reared does 
depend, very greatly, upon the circumstances of the 
parents. When the wages of parents are barely 
siulicient to rear two children, but two will be 
reared ; the rest will die in infancy. When wages 
will allow of rearing four, four will, on an average, 
be reared ; and so on, until we arrive at the natural 
limit of fecundity of the human race, supposing the 



SUPPLY AND DEMAND FOR LABOR. 317 

habits of the parents to be virtuous, industrious, and 
frugal. Now, as simple labor requires nothing but 
healthy human beings, it is manifest that the sup- 
ply of this labor will be in proportion to the demand ; 
that is, if wages be such as to indicate an actual de- 
mand for a large increase of labor, a large increase 
of labor will be the result. If wages be such as to 
demand only a diminished amount of labor, a 
diminished number of laborers will be reared. And 
this result will take place, until, on the one hand, it 
reaches the limit of the natural increase of the hu- 
man race ; or until, on the other hand, the number 
of human beings be so reduced by death or by emi- 
gration, that it can be sustained by the wages which 
industry can command. 

If this first limit be reached : that is, if wages be 
so high as to support all the children that are born, 
and yet there be a want of laborers, wages will rise 
very high ; and the deficiency will generally be sup- 
plied by immigration. Laborers from less favored 
countries will then flow in, to supply the demand. 
The overburdened population of an older country 
will be drained off, and the surplus capital of a new 
country will be profitably employed. 

2. Such is the case with simple labor, or that 
which is produced by the mere multiplication of hu- 
man beings. The same principles apply, in sub- 
stance, to that sort of labor which consists of indus- 
try, directed by previously acquired skill, but which 
requires no special natural endowment. In this case, 
as has been remarked, if the investment made in 
education will afford sufficient emolument, in ad- 
dition to that obtained by simple labor, it will be 
produced. If this additional emolument be insuf- 
ficient, it will not be produced ; that is, men will not 
be educated for this particular occupation; or, if 
they have been educated for it, they will leave it, 
and devote themselves to some other pursuit. 

3. But, it frequently happens, that not only an 
education, but also peculiar native talent is necessa- 

27* 



318 SUPPLY AND DEMAND FOR LABOR. 

ry, ill order to arrive at eminence, in a particular 
pursuit. When this is the case, the supply is limi- 
ted by the gift of the Creator, and cannot be in- 
creased by the agency of man. No pecuniary emol- 
ument could create the talent of a Milton or a 
Shakspeare, a Cicero or a Demosthenes, a Watt or a 
Fulton. Hence, the demand for such talent being 
great, and the supply limited, and by human effort 
incapable of increase, the exchangeable value of its 
productions is frequently great. The emoluments of 
Sir Walter Scott were princely. It not unfrequently 
happens, however, that this sort of talent is in ad- 
vance of its age, and its value is not appreciated 
until after the death of its possessor. Although, 
however, demand cannot create unusual genius, yet 
it is the fact, that, whenever the demand is greatest 
for any particular talent, then, that talent is most 
likely to arise. The reason I suppose to be, that, in 
proportion to the encouragement which it receives, 
the less is the liability that any portion of that which 
the Creator has bestowed will be lost. Military tal- 
ent, which is commonly held in the high estimation, 
seems to be of very frequent occurrence. A nation 
has rarely any real need for it, without producing, 
in a short time, as great an amount of it as can be 
desired. The same remarks apply, in a considera- 
ble degree, to the talent for invention ; for scientific 
investigation ; for eloquence ; and many others. 

Secondly. Of demand for Labor. We have al- 
ready divided labor into two kinds, viz : First, Simple 
labor, comprehending, under this term, that which 
requires only that skill which every person may 
easily acquire ; and, secondly, that which requires 
some peculiar talent, and is perfected only by long 
and expensive training. We shall here, as above, 
consider these separately. 

I. Of Si?)iple Labor, and that which requires only 
such skill as may be easily accpiired by all. 

This is the sort of labor required to produce the 
necessaries of life ; that is, labor in the several de- 



SUPPLY AND DEMAND FOR LABOR. 319 

partments of operative industry. For this labor, the 
desire is incessant and universal. Every one in the 
community needs, at every hour of his life, the 
results of that labor which produces food, clothing, 
fuel and shelter. Unless these can be procured, the 
human being will die ; and, as these articles perish 
with the using, the demand is not only imperative, 
but unremitting. 

Now, such being the fact, he who possesses capital, 
knows that, if he can transform it into such pro- 
ducts, he can always reasonably anticipate a profit. 
But he cannot transform it into such products, with- 
out labor. Hence, as incessant and imperative as is 
the demand for the necessaries of life, so incessant 
and imperative must be the demand of the capital- 
ist for that labor, by means of which alone they 
are produced. If a community need clothing, and 
a capitalist have all the means for making clothing ; 
and want nothing but workman to create the pro- 
duct ; just in proportion to the demand for clothing, 
will be his demand for the workman, by whose agen- 
cy alone this demand can be supplied, and his capi- 
tal rendered profitable. 

Such being the fact, there must always be a de- 
mand for such labor ; hence, when there is any cap- 
ital, such labor will always bring something. The 
rate at which it will be paid at different times, and 
in different countries, is next to be considered. 

We have already stated, that wages are the result 
of a partnership, formed between the laborer and 
the capitalist, in which the one receives a portion of 
the value created, in return for his labor ; and the 
other, the remainder, in return for the use of his 
capital. Both of these parties are equally necessary 
to each other. If the laborer could not procure work, 
or could not exchange his labor for some value which 
he created, he must starve. If the capitalist could 
not create value from the employment of his capital, 
he must starve also. He could neither eat, nor drink, 
nor wear his looms, spinning-jennies, ships, iron, or 



320 POPULATION AND "WAGES. 

cotton. Both, therefore, come into the market on 
equal terms ; each needs the product of the other ; 
and, under these circumstances, they will each re- 
ceive either less or more, in consequence of the con- 
ditions under which the exchange is made. 

Every capitalist wishes to have all his capital 
united with labor ; since, that which is not thus uni- 
ted, will be useless to him ; nay, it will generally 
diminish in actual value. On the other hand, in a 
given state of the arts, the labor of a single man 
can be applied to but a given amount of capital. 
Hence, the number of laborers whom any single 
capitalist will require, will be in proportion to the 
amount of his capital. If a capitalist of ten thou- 
sand dollars require ten laborers, one of one hun- 
dred thousand dollars will require one hundred la- 
borers. And so, in general, the greater the amount 
of capital employed in a country, the greater, of 
course, will be the number of laborers employed. 

As now, every capitalist will wish to employ all 
his capital, if the number of laborers be insufficient 
to supply the demand, there will be a competition 
among capitalists for laborers, and they will offer 
higher wages ; that is, rather than have any portion 
of their capital useless, they will offer a larger share 
of the profits to the laborer. The first class of work- 
men will be all employed at a high price, and a por- 
tion of the second class will be raised one grade, in 
order to supply the demand. The second class will, 
then, be still more insufficient to supply the demand 
for their description of labor, and their wages will 
rise, and the increased deficiency be supplied from 
the third class. And, at last, those who were be- 
fore employed only at simple labor, will be taught 
and employed in educated labor ; and thus, the 
whole class of workmen will be raised one grade in 
labor and in wages. 

And the reverse will take place in the opposite case. 
Suppose the number of laborers be too great to be 
employed by the existing amount of capital. A cap- 



POPULATION AND "WAGES. 321 

italist whose capital will occupy but one hundred, 
cannot employ one hundred and fifty laborers. 
Hence, there will be a competition among laborers 
for work. After as many of the first class have been 
employed as are needed, there will remain a portion 
of them out of work. These must fall into the sec- 
ond class, and receive the second rate of wages. 
This will cause an excess still greater in the second 
class ; their wages will fall, and a greater number 
will fall into the third class. The lowest class will 
thus be supplied from the classes above it, and it 
must betake itself to simple labor, or labor of the 
cheapest kind, while many of those whose only sup- 
port is derived from simple labor, must be out of 
employment, either wholly or in part ■ that is, the 
whole class of laborers will fall one grade, and their 
wages will depreciate in proportion. Hence, we see, 
that, at any given time and place, the demand for 
labor, and the wages of labor will be in the propor- 
tion to the ratio that the active capital of a country 
bears, to the number of laborers in that country. 

But provision has been made, in our physical 
constitution, for the rapid increase of the human 
race. It is capable of doubling, once in twenty-five 
years, as it is seen to be the case in the United 
States. And provision is also made for the rapid 
accumulation of capital. The earth, every year, 
if it be properly tilled, and if capital be properly 
employed, produces more than its inhabitants con- 
sume. This surplus may be turned into fixed capi- 
tal, and may thus give employment to a larger num- 
ber of laborers. Hence the average rate of wages 
in any country for a number of years taken togeth- 
er, must depend upon the ratio which the annual 
accumulation of capital in any country, bears to the 
annual increase of human beings. If wages be high, 
and capital increase as fast as the human species 
increases, wages will for any period that may be 
contemplated, continue as they are at present. If 
wages be low, and capital does not increase faster 



3'4'4 POPULATION AND WAGES. 

than the hitman race, they will continue low. If 
the increase of capital be more rapid than the 
natural increase of the human race, wages, how- 
ever high, will rise, until they be so high that the 
production can yield no profit. The deficiency would 
then be supplied by foreigners, who would, immi- 
grate to the more favored country. If the increase 
of capital be less rapid than that of the human race, 
the price of wages will fall, distress in the working 
classes will ensue, and they must either emigrate or 
starve. 

If this be so, it will be evident that the laws reg- 
ulating wages depend upon circumstances beyond the 
power of capitalists or laborers. The rich cannot 
refuse to employ laborers without loss, and the work- 
man cannot refuse to labor without loss. And the 
competition which naturally exists, in a free country, 
is all that is necessary to bring wages to their proper 
level ; that is to all that can be reasonably paid for 
them. Hence combinations among capitalists or la- 
borers are not only useless, but expensive, and un- 
just. They attempt to change the laws by which 
remuneration is governed and they must, by conse- 
quence, thus be useless. They expose capital and 
labor to long periods of idleness, and thus are expen- 
sive. They assume the power of depriving the cap- 
italist of his right to employ laborers, and the la- 
borer of his right to dispose of his labor to whomso- 
ever and on what terms soever he pleases, and hence 
they are unjust. And combinations of this kind are 
as unjust when undertaken by the rich as by the 
poor. 

Hence we see, that the prosperity of a nation does 
not depend simply upon the absolute amount of its 
capital, but upon the ratio which its capital bears 
to its population, and the ratio which is maintained 
between the increase of both. If the increase of 
capital be so rapid as to allow the simple laborer 
sufficient wages to support and rear as many chil- 
dren as, under ordinary circumstances, form a hu- 



POPULATION AND WAGES. 323 

man family, there will be no distress in any class ; 
all will be well supported ; there will be no beggars 
from necessity ; and every one will have the addi- 
tional advantage arising from his skill and his edu- 
cation. If the increase of capital be more rapid 
than this, every one will have, besides support and 
maintenance, many of the conveniences of life ; and 
a large proportion will be continually rising from a 
lower to a higher grade of employment. When the 
increase of capital is less rapid than the ordinary 
increase of the human race, there will be, in the low- 
est class, continual distress ; children will die in 
great numbers ; the average duration of human life 
will be shortened ; and many persons will be sink- 
ing from the higher into the lower grades of employ- 
ment and comfort. 

The former seems to be the condition of this coun- 
try. Here distressing poverty, or poverty which 
shortens life, except it arise from intemperance, or 
from so'me form of vice or indolence, is very rare. 
The common laborer, if industrious, virtuous, and 
frugal, may not only support himself, but in a few 
years, accumulate a valuable little capital. And 
notwithstanding the great immigration of foreigners, 
the wages of labor are annually rising. Hence, it is 
evident, that the increase of capital more than keeps 
pace with the natural and imported increase of the 
human race. 

In Ireland, the case is reversed. There, the low- 
est classes are, and have been for a long period, in 
the most abject poverty. Multitudes of them are 
said to die, annually of famine. He is considered 
in tolerable circumstances, who is able to furnish his 
family with a hovel, with one full meal of potatoes 
a day, and with a sufficient supply of straw to be 
spread upon the earthy floor for bedding. The rea- 
son I suppose to be, that, in addition to the deplora- 
ble ignorance of the people, the land is owned in 
England ; and the rents, collected by rapacious un- 
derlings, is annually carried away and spent in Eng- 



324 POPULATION AND WAGES. 

land, instead of being turned into fixed capital in 
Ireland. Hence, the annual increase adds but little 
to the capital of the country ; and the people must 
starve or emigrate. 

This subject illustrates the connection between 
capital and population. Population always follows 
capital. It increases as capital increases ; is station- 
ary when capital is stationary ; and decreases, when 
capital decreases. And hence, there seems no need 
of any other means to prevent the too rapid increase 
of population, than to secure a correspondent in- 
crease of capital, by which that population may be 
supported. 

Several conclusions naturally belong to this part 
of this subject, to which it may be proper in this 
place to allude. 

1. If the above reasonings be correct, we see the 
great importance, both of individual and national 
frugality. It is by many persons, supposed, that 
luxury and expensiveness in individuals are special- 
ly useful to the poor ; and that economy and frugal- 
ity are injurious to them. We see, however, that 
nothing could be more evidently erroneous. He who 
consumes upon horses, and dogs, and equipage, ten 
thousand dollars' worth of value, is annually put- 
ting out of existence a value, which, if united 
with industry, might support several families in com- 
fort ; and he is thus rendering it impossible, that so 
many can be supported. He who saves this sum by 
frugality, and invests it in some profitable enter- 
prise, employs the persons whom it will support the 
first year ; and, by so doing, is enabled to support a 
larger number the next year, and so on indefinitely. 
The one is destroying, for ever, a fund for the sup- 
port of industry ; the other is annually rendering 
that fund larger and more productive. 

2. The same is true of nations. The annual rev- 
enue of a nation, must of course be derived from the 
annual revenues of the people. If a man, this year, 
pay one hundred dollars in taxes, he has precisely 



POPULATION AND WAGES. 325 

ninety dollars less to unite with the industry of the 
next year, than he would have, if he paid only ten 
dollars. And thus, if the annual expenditures of a 
nation be fifty millions, these fifty millions are just 
so much abstracted from the fund which has been 
collected during that year, for the purpose of sup- 
porting the addition which this year has made to 
the number of the human race. If the whole reve- 
nue of the nation were barely sufficient to employ 
and support the annual increase of its inhabitants, 
those who would have been supported by these ad- 
ditional fifty millions, must perish. Such is the 
natural and necessary result of national prodigality. 

I do not, however, by any means intend to assert, 
that taxes are unnecessary. A government neces- 
sarily involves expense. And, if the government be 
well administered, no mode of expenditure yields a 
richer or more valuable product than taxes. What I 
have to say, is merely this ; that while all the ex- 
pense necessary to good government should be met, 
and met cheerfully and liberally, yet expense beyond 
this is a benefit to no one ; it diminishes the com- 
forts of all, and destroys the lives of multitudes. 
Hence, we see the evil of any form of government, 
which, by necessity, involves great expenditure. 
Hence, also, the evil of laws of entail, and of all other 
arrangements by which immense amounts of capi- 
tal are accumulated in the hands of single individ- 
uals, or of families, in perpetuity. In this manner, 
the annual productiveness of a country is greatly 
decreased, and, in consequence, the annual revenue 
of the whole, is by the difference lessened. 

3. Of all the modes of national expenditure, the 
most enormous is that of war. In the first place,, 
the expense of the munitions of War is overwhelm- 
ing. In the next place, the most athletic and vigor- 
ous laborers must be selected for slaughter. Of these 
the time and labor are wholly unproductive. The 
operations of industry, in both belligerent nations, 
are thus greatly paralyzed. The destruction of 
28 



323 POPULATION AND WAGES. 

property, in the district through which an army 
passes, is generally very great. All this must he 
taken from the earnings of a people ; and is so much 
capital absolutely destroyed, from which multitudes 
might have been reared, and have lived in pros- 
perity. # 

If the considerations which have been adduced 
above be correct, there is no need of seeking any fur- 

* To illustrate the vast expenditure of war, I here insert an esti- 
mate of the expenses of some of the latest wars. I do not vouch 
for its entire accuracy, but, I presume it will be found, in general, 
correct. It is from one of the publications of the Peace Society, 
and seems to be made up from authentic documents. 

GREAT BRITAIN. 

War expenses, for the year 1815, ... £54,317,767 
Interest on debt, for that year, - - - 6,200,000 

£60,517,767 
Military and naval expenses, for 1818, - - 15,155,000 

Difference of the two years, - - -.•".. 45,362,767 

Equal to $201,362,898 



Military expenses for 1809, - - - francs 656,500,000 
Contributions on foreign nations, - - - 330,000,000 



Total, - - - 986,500,000 
In 1817, the military expense was, - - 228,000,000 

Expense of one year's war, .... 758,500,000 
Equal to - $142,218,750 
The estimated cost to Great Britain, of twenty- 
two years' war, £720,000,000 

Equal to $3,200,000,000 

War expense for France, for same period, - 3,130,000,000 

Austria, about - 2,000,000,000 

Three years' war of the United States, - 120,000,000 

8,450,000,000 
Expense of other European powers, - - 4,550,000,000 

13,000,000,000 

This is nothing but the national expense, without estimating the 
prodigious and incalculable losses to individuals. 



POPULATION AND WAGES. 327 

ther for the cause of that distress among the lower 
classes of which we hear so frequently in Europe. 
If the capital which a bountiful Creator has provi- 
ded for the sustenance of man, be dissipated in wars, 
his creatures must perish for the want of it. Nor 
do we need any abstruse theories of population, to 
enable us to ascertain in what manner this excess of 
population may be prevented. Let nations cultivate 
the arts of peace. Let them reduce the unnecessary 
expenses of governments. Let them abolish those 
restrictions which fetter and dispirit industry, by 
diminishing the inducements to labor. Let them foster 
the means by which the productiveness of labor may 
be increased, and the annual gifts of the Creator 
will so accumulate, that the means will be provided 
for the support of all the human beings which are 
annually brought into the world. As soon as this 
accumulation bears a suitable ratio to the number of 
inhabitants, we shall hear no more of the evils of 
excess of population. It is vain to throw away 
the food of a million of people in a single day, and 
then be astonished that a million of people are starv- 
ing for the want of it. 

Hence we learn the economical evils of every form 
of vice ; as, for instance, of intemperance. The mo- 
ney spent in intemperance, is so much absolute waste 
of capital. This is, of itself, in most civilized coun- 
tries, enormous. But besides this, it unfits the in- 
dividual for labor ; it is the author of numerous 
diseases, both in parents and in children. It is the 
cause of almost all the crime and pauperism in the 
community. All these together, if they could be 
correctly estimated, would form a total amount which 
would seem almost incredible ; and they are alto- 
gether exclusive of that loss of social, intellectual 
and moral happiness, which results from this vice. 

To. sum up what has been said. We see that, the 
demand for the labor employed in the production of 
the necessaries of life ; and, of course, the wages of 
labor, must be in proportion to the ratio which the 



32S LABOR IN THE FINE ARTS. 

amount of capital in any given community, holds to 
the number of laborers ; and to the ratio which the 
accumulation of capital bears to the increase of the 
human race. And these being at any time fixed, 
wages will rise or fall, as this ratio varies. If capi- 
tal be increasing more rapidly than human beings, 
wages will rise. If it be not increasing so fast, wages 
will fall. And if, from any sudden change in the 
affairs of a country, this ratio be suddenly affected, 
wages will be affected accordingly. 

II. I now come to consider that sort of labor, 
which requires special and expensive education, and 
some peculiar natural endowment ; such, for in- 
stance, is the labor which is bestowed upon the fine 
arts, and which is employed in some of the profes- 
sions. 

1. The desire for this labor varies with the age of 
a society. In the beginnings of a nation, when 
every one is interested in providing the means of 
subsistence, there is little time or capital to spare for 
the cultivation of a taste for the fine arts. And, at 
a yet more advanced period, when wages for labor 
are universally high, and every one may reasonably 
cherish the hope of attaining to independence, the 
love of gain is too absorbing a passion to allow of 
the developement of any habit that does not conduce 
to pecuniary acquisition. It is only in the later and 
more advanced stages of society, where hereditary 
fortunes have been built up, and where accumulated 
property gives opportunity for leisure and refine- 
ment, that much desire is manifested for those pro- 
ductions of the fine arts, which are considered the 
offspring of the rarest and most highly gifted talent. 

2. The ability to gratify this desire, depends also 
upon the form of social organization. The produc- 
tions of the fine arts are generally very costly. 
Hence, where property is nearly equally divided, 
where no one is poor, though no one may be exorbi- 
tantly rich, such productions could have but few 
purchasers. Whether wages were high or low, 



CAUSES OF DIFFERENCE OF "WAGES. 329 

whether there were no beggars, or whether there 
were ten thousand beggars, would have no effect 
upon the probability of the sale of a statue which 
cost one hundred thousand dollars. The demand, 
is of necessity, limited to the wealthy ; and that form 
of. social organization which is most favorable to the 
accumulation of large estates, and to the retaining 
of them in the hands of single individuals, will al- 
ways be most favorable to the cultivation of the fine 
arts. In this country, where we have few beggars, 
and where, but for intemperance and vice, we should 
have none, a first-rate sculptor or painter would 
starve. In many of the countries of Europe, where 
the poor are frequently famishing, and where a large 
proportion of the population are beggars, you may 
frequently find, in the gallery of a single gentleman, 
a finer collection of paintings, than could be made 
from all the pictures in the whole United States. 
Hence, I think that the prospect for the arts, in this 
country, is by no means encouraging. 



SECTION II. 

OF THE SPECIAL CIRCUMSTANCES BY WHICH, IRRESPEC- 
TIVELY OF THE INFLUENCE OF CAPITAL, THE 
WAGES OF LABOR ARE AFFECTED. 

In the preceding section, I have endeavored to 
show in what manner wages, or the price of labor 
are affected by capital. The general principle there 
illustrated, is, that wages will be high, when the pro- 
portion of capital to labor is great ; and low, when 
the proportion of capital to labor is small : and that 
wages will be rising or falling, as this proportion of 
capital to labor is increasing or diminishing. On 
this principle, I suppose that the difference of wages, 
28* 



330 CAUSES OF DIFFERENCE OF WAGES. 

in different countries, under the same physical con- 
ditions, may be explained. 

The same principle may be carried a step farther. 
Whenever, in any country, capital is removed from 
one kind of employment to another, the wages, in 
that form of labor to which capital is transferred, 
will be raised. Thus, if a people find it for their 
interest to employ their capital in manufactures, in- 
stead of navigation ; the wages of manufacturers 
will rise, and those of sailors will fall. This will 
continue, until the demand for manufacturing labor 
is supplied. But, when the current is once set in 
any direction, it frequently continues to move, after 
the force which was originally applied, has ceased. 
Hence, it will frequently happen, that a change of 
this sort will abstract from navigation too large a 
number of laborers, so that there will not be a suf- 
ficient supply to meet even the diminished demand. 
In this case, the wages of seamen will rise again, 
somewhat above the proper average. 

But, supposing all these circumstances to be ad- 
justed, there will yet remain others of a different 
kind, to affect the wages of labor. We do not find 
that the wages of all laborers are the same, whether 
labor be high or low, and whether the productive- 
ness of labor be great or small. A captain receives 
higher wages than a sailor; a master manufacturer, 
higher wages than his journeyman ; and a merchant, 
higher wages than his clerk. The circumstances 
which cause these differences, remain now briefly to 
be noticed. 

1. The price of labor is affected by the ease or 
difficulty, the pleasure or pain, of the employment. 

When the employment, for instance, requires great 
muscular effort, the number of persons who can ac- 
complish it, is comparatively small. This dimin- 
ishes the supply, and, of course, increases the price. 
When this is the case, as men are not usually at- 
tracted by the prospect of hard labor, a smaller num- 
ber apply for this kind of employment. This still 



CAUSES OF DIFFERENCE OF WAGES. 331 

further diminishes the supply. Hence, the price will 
rise, as the wages must be increased sufficiently to 
overcome this repugnance. On the contrary, when 
the labor is easy, the number of persons, both able 
and willing to perform it, is increased ; thus, the 
supply is large, and wages fall in proportion. 

The same effect is produced by the general esti- 
mation of the pleasantness or unpleasantness of the 
employment. Any kind of industry, which, from 
necessity, is uncleanly, commands higher wages than 
one which can be performed without interfering with 
personal neatness. One which is considered dis- 
graceful, can be supplied with laborers, only by pay- 
ing an unusual price. The business of a public ex- 
ecutioner, though not difficult, is disagreeable, and 
generally considered disgraceful; and hence, in coun- 
tries where it is made a distinct profession, it com- 
mands high wages. The labor in the learned pro- 
fessions, is considered honorable ; and, therefore, it 
is less highly recompensed than the same degree of 
labor and skill in other employments. 

2. Wages are affected by the skill required in per- 
forming the operation. This arises from two cir- 
cumstances : First, skill can be acquired only by 
practice and education. This, as has been explained, 
is in itself costly, and is an investment, for which 
the possessor of right receives an emolument. And, 
secondly, unusual skill, generally supposes some un- 
usual endowment. But, in proportion to the rarity 
of the endowment, must be the smallness of the 
supply, and, of course, the rise of price which must 
be paid for the product. 

3. The confidence reposed. Wherever a great 
amount of capital is employed, it must, to a very 
considerable degree, be placed in the power of some 
one or more agents. Hence, if this power be abused, 
or used unwisely, the whole is liable to be lost. If 
the manager be careless, he may destroy it by negli- 
gence ; and, if he be dishonest, he may convert it to 
his own emolument. Now, this union of judgment 



332 CAUSES OF DIFFERENCE OF WAGES. 

with incorruptible integrity, is absolutely necessary 
in many of the operations of production. But, such 
a union is rarely to be found. Hence, while the de- 
mand is imperative, the supply is small. On this 
account, though the wages of such persons are high ; 
it is generally found more economical to employ 
them, at any price, than to intrust important 
affairs to the incompetent and the vicious. This is 
one of the rewards, which, in the course of human 
events, God bestows upon wisdom and virtue. 

4. Certainty or uncertainty, constancy or incon- 
stancy of employment. Division of labor requires 
that a man devote himself exclusively to a single 
employment, and, therefore, that his whole emolu- 
ment be derived from that employment. Hence, 
when the opportunities of employment are rare, the 
wages for each particular operation must be greater ; 
since we must pay, not only for the time actually 
employed, but also for that time which is lost to the 
laborer, while waiting for employment. We pay 
more for riding a mile in a hackney-coach, than for 
riding the same distance in a stage-coach ; because 
the hackney-coachman may stand half a day in 
waiting, before he finds another customer. For the 
same reason, although horse keeping is higher in the 
city than in a country town, you pay less for coach 
hire in the former case, than in the latter, because of 
the greater steadiness of the employment. Thus, 
also, when a trade can be exercised for only a part 
of the year, as in the case of a brick-layer, you pay 
to the laborer higher wages ; because he must re- 
ceive enough to compensate for the time in which he 
is obliged to lie idle. 

5. Another circumstance which affects the price 
of wages, is the certainty or uncertainty of success. 
In most of the ordinary avocations of life, if a man 
acquire the requisite skill, he will invariably find 
employment. In the professions, it is not so. Those 
who have prepared themselves at great expense for 
the practice of a profession, unable to find employ- 
ment, sometimes relinquish it for an other pursuit. 



CAUSES OF DIFFERENCE OF WAGES. 333 

When such a risk exists, the wages of labor should 
be greater ; for the laborer is entitled to a remunera- 
tion for the risk of this loss of time and of capital. 

These, I believe, are the principal circumstances 
on which, irrespectively of the influence of capital, 
the price of labor depends. It will be at once seen, 
that they are susceptible of very great variety of 
modification, and combination ; and that, frequent- 
ly, several of them must be taken into the account, 
in order to explain the reason of the high or low 
price of any particular form of labor. I think, how- 
ever, that by such combination, the various phenom- 
ena of wages may be generally explained. 

The preceding remarks are intended to apply to 
those cases, in which the individual is supported 
wholly by his own labor. When an individual, or 
a class of individuals, have any other means of sup- 
port, the price of labor, of course, falls, and can be 
subjected to no general rule. Thus, a large portion 
of the laboring class of females are supported, in 
part, by their relatives ; some of them receiving 
house-rent, others, both house-rent and board, for 
nothing. Hence, they are enabled to labor for a 
price, far less than the actual cost. This is one rea- 
son why the price of female labor, especially of that 
labor which requires but little skill, and which can 
be done at home, is so low. Another reason is, that 
the customs of society, restrict the modes of produc- 
tion in which female labor may be employed. Hence, 
in these modes of production, the supply of labor is 
greater than the demand. Hence, also, the estab- 
lishment of a manufactory, or the introduction of 
any kind of labor, which furnishes a new mode of 
female employment, advances the price of female 
labor. This, also, is the reason why the labor per- 
formed in nunneries, monasteries, and state prisons, 
is sold below the market price. The fact is, that the 
laborers are supported, either in whole or in part, by 
a separate fund ; and hence, there is no natural price 
for their products, since it is not regulated by the 
cost. 



CHAPTER SECOND. 

THE PRICE OF MONEY, OR INTEREST. 



SECTION I. 

OF THE BENEFIT OF CAPITAL TO THE LABORER. 

Having, in the preceding chapter, endeavored to il- 
lustrate the principles which regulate the rate of 
wages, we now proceed to illustrate those which reg- 
ulate the rate of interest, or the price of capital. 

We have already stated, that when two persons 
were engaged in creating a product, a part of the 
profit belonged to the labor, and a part to the capi- 
tal. Let us first consider the benefit of capital to 
the laborer. 

Suppose a laborer to be endowed with health, and 
also with skill sufficient to perform an operation in 
any mode of production. His power is made up of 
two things ; first, mere muscular force ; and, second- 
ly, skill. By the one, he is enabled to exert mere 
brute force, as in lifting, carrying, or drawing. By 
the second he is enabled to avail himself of the use 
of natural agents ; for skill in production is little else 
than this ability. But it is evident that his labor of 
the first kind, is vastly less productive than that of 
the second kind, as the simple labor of a man's hands 
is less productive than that labor which is employed 
in directing the agents of nature. 

Suppose, now, a man entirely deprived of the use 
of capital; his labor must be wholly of the first 
kind ; of course, it must be of the least productive 
quality, and it must earn the lowest rate of wages. 
Suppose a blacksmith, of ever so great skill, desti- 



BENEFIT OF CAPITAL TO THE LABORER. 335 

tute of forge, hammer, anvil, and of all his tools, and 
also of iron upon which to employ them ; he can, in 
no manner, avail himself of his skill, or of the use 
of the natural agents with which he is acquainted, 
and he must either perish or else earn his livelihood 
by simple labor ; that is, by the putting forth of mere 
brute force, without any benefit from his skill, though 
it be ever so great. But, let some one loan him a 
shop and tools, with iron and coal sufficient to carry 
on his business, and he can, at once, avail himself of 
his skill ; that is, of the use of those natural agents, 
with which he is acquainted. His labor will now 
become vastly more productive ; that is, he can, in 
a given time, create a vastly greater amount of val- 
ue than before, and will, of course, receive a much 
larger recompense. If his simple labor were worth 
one dollar per day, his labor and skill will now pro- 
bably be worth at least two dollars ; that is, the cap- 
ital which he uses, has at least doubled his wages. 
This, at the rate of three hundred working days in 
a year, would be equal to three hundred dollars, 
which he receives for the use of the capital which 
was loaned to him. Suppose that this capital were 
worth, originally, five hundred dollars ; and that he 
paid for the use and wear and tear of it, ten per 
cent, per year, he might then pay fifty dollars for 
the use of it, and have two hundred and fifty dol- 
lars net profit, over and above the wages which his 
simple labor could earn. In two years, he might, 
besides paying the interest, pay for the whole capi- 
tal, and thus own it himself. He would then be 
entitled to all the profit derived from the three sev- 
eral sources: first, his labor; secondly, his skill- 
and, thirdly, the use of the capital, upon which his 
labor was employed. 

I have, in the above case, supposed the laborer to 
borrow the shop, tools and materials. This is not 
the ordinary way in which capital is borrowed. It 
is much more common, and much more convenient 
for him, who wishes to borrow the capital with which 



336 BENEFIT OF CAPITAL TO THE LABORER. 

to employ his skill, to borrow it in the form of mo- 
ney, which he immediately transforms into that kind 
of capital, which his occupation requires. Hence, 
contracts of this kind are always estimated in money. 
And hence, interest is commonly called the price of 
money. It is evident, however, that it is not the 
money, but the capital, which is wanted ; because, as 
soon as the man obtains the money, he at once ex- 
changes it for capital. This, therefore, should al- 
ways be borne in mind, that when we speak of the 
price of money, we always mean the price of capi- 
tal, for which the money is always exchanged. 

Hence we see, that the laborer may derive very 
great benefit from the loan of money ; that is, of 
capital. He is thus enabled to employ, advanta- 
geously, all his skill ; and thus, a loan for a few 
years is very frequently the commencement of a for- 
tune. And hence we see, as we have said before, how 
very absurd is the prejudice so commonly excited 
against money-lenders, and money-lending institu- 
tions. Were there no money-lenders, there could be 
no money-borrowers ; and were there no money- 
borrowers, the industrious artisan would surely be 
the greatest sufferer. It is not denied that the mo- 
ney-lender, loans for his own advantage. But, I do 
not see why it is any more odious for one man to 
lend for his own advantage, than for another man to 
horroxo for his own advantage. It is not pleaded, 
that the one, any more than the other, is benevolent. 
This is quite another question. All that is pleaded 
is, that both, in so far as the things themselves are 
concerned, are equally honest and honorable. In 
both cases, the man benefits himself while he bene- 
fits others ; and this is all that can be said in favor 
of any other exchange. It is not, of course, denied, 
that the lender may be oppressive, tyrannical, and 
avaricious ; nor that the borrower may be fraudu- 
lent, indolent, and profligate. But this affects not 
the nature of the transaction per se. We here speak 
q{ the thing itself, and not of the manner in which 



BENEFIT OF CAPITAL TO THE LABORER. 337 

either party may act, in consequence of, or in con- 
nection with it. 

I have stated but one form in which the laborer is 
benefitted by the use of capital. Another form of 
similar advantage is equally common. 

Suppose that a village were destitute of capital, 
and that its inhabitants were therefore obliged to be 
employed in simple labor, or in that which required 
the least skill, and, therefore, produced the lowest 
wages. They would, consequently, be poor, and 
would be able to accumulate Very little ; since, their 
whole earnings would be scarcely more than suffi- 
cient to provide them with the necessaries of life. 
Let, now, an opulent man come among them, and 
establish a manufactory which should employ every 
inhabitant capable of labor. Every one knows, that, 
by this means, the wages of labor would be doubled, 
and all the comforts of living would be incompara- 
bly increased. The reason is the same, in princi- 
ple, as in the other case. The capitalist furnishes 
the materials and the tools, by which the laborer is 
now enabled to use his skill, in addition to the sim- 
ple labor, which he used formerly ; that is, by which 
he is enabled to labor, not with his hands, but also 
with the agents of nature. The result is, a great 
increase of the productiveness of industry ; and, of 
course, a much larger amount than before, becomes 
the portion of the laborer. In the division of the 
profits the owner receives payment for the use, wear 
and tear, and risk of his instruments, for the use and 
risk of his material, and for his own labor and skill 
in supervision, if he superintend ; or for the labor 
and skill of another, if he does it by a deputy. The 
workman receives payment for his labor and for his 
skill, according to the principles illustrated in the 
preceding chapter. We see, that, in this case, the 
laborer is as truly benefitted by the use of capital, 
as in the former. The only difference is, that here, 
he receives payment only for labor and skill ; and 
there he received payment for the use of capital, 
29 



338 BENEFIT OF CAPITAL TO THE LABORER. 

deducting the rate of interest and the risk of loss. 
It will be easy to apply the principle here illustrated 
to other cases. When a merchant borrows capital, 
he is thus enabled to use his skill in exchange. 
Hence, the use of capital, makes the difference be- 
tween his wages as a merchant, and what his wages 
would be, were he a common laborer. And so of 
any other case. 

Hence, we see how incorrect is the notion fre- 
quently advanced, that when property is destroyed 
by fire or flood, or in any other manner, it is of no 
consequence to the community ; since it was noth- 
ing but the possessions of the rich. The rich may, 
or may not, suffer in their comforts and convenien- 
ces, by such a loss ; but the poor always must suf- 
fer. The very means by which their wages are 
raised from those of simple to those of skillful labor, 
from the wages of labor with their hands alone, to 
the wages of labor with the agents of nature, is thus 
taken away. Remove capital, and they have noth- 
ing to offer in exchange, but mere physical force. 
Hence, it is always to be remembered, that, in the 
destruction of property, the poor are always the 
greatest sufferers. 

It is evident, then, that capital loaned, should be 
paid for. Interest is no extortion, and no unreason- 
able demand. It is for the advantage of the skillful la- 
borer to borrow it, at a reasonable interest, as much 
as it is for the advantage of the 'capitalist to loan it ; 
and it is as much for the advantage of the laborer as 
the capitalist, to enter into that partnership, by 
which they share the profits of the operation between 
them. It is by reason of this partnership, as I have 
said, that the laborer receives the wages of skill, in- 
stead of the wages of mere pJiysical force ; and the 
capitalist is able to employ all his capital in produc- 
tion, instead of employing only that j)ortion of it, 
which he could employ with simply his own per- 
sonal industry and skill. 



OF RISK OF INVESTMENT. 339 

We next proceed to consider the circumstances 
which vary the rate of interest at which capital may- 
be borrowed. These, I suppose to be three, viz: 1st. 
Risk ; 2d. Convenience of Investment ; and, 3d. 
Productiveness of Capital. 



SECTION II. 

OF RISK, AND CONVENIENCE OF INVESTMENT. 

I. Of Risk. When a man loans his property to 
another, there is always a risk of his never being 
repaid. Now, the greater this risk, the greater will 
be the interest which a capitalist may justly demand. 
He who would loan to one man, for six per cent., 
when he was sure of being repaid, would not surely, 
loan to another man, for the same sum, when there 
were fifty chances in a hundred, that he would lose 
both principal and interest. At any rate, he who 
did so, would very soon cease loaning altogether. 

This risk depends upon several circumstances. 
Of these, the principal are : the nature of the em- 
ployment ; the character of the borrower ; and the 
character of the government. 

1. There is a difference in risk, arising from the 
different modes of employing capital. For instance, 
property at sea, is more liable to destruction than 
property on land. Hence, the ancient Athenians made 
a difference between land and marine interest. The 
former was at twelve, and the latter as high as sixty 
per cent, per annum. Property in merchandise is 
more liable to be destroyed, than property in houses ; 
property in houses, than property in farms. A house 
in the country, is safer than a house in town ; and a 
stone house is safer than a wooden house. Property 
■employed in the manufacture of cotton, is less liable 



340 OF RISK OF INVESTMENT. 

to be destroyed than property employed in the man- 
ufacture of gunpowder. Now, when a capitalist 
loans property to be invested in some one of the 
above forms of capital, and his only security for pay- 
ment consists in his hold upon the property in which 
it is invested, it is evident that his risk, other things 
being equal, will depend upon the safety of that pro- 
perty. Hence, it is reasonable that his remuneration 
for risk, should correspond with the greatness of that 
risk. 

2. The second circumstance which enters into risk, 
is the personal character of the borrower. This is 
made up of industry, skill, knowledge of business, 
pecuniary ability, and moral character. When these 
have not been tested, or where, having been tested, 
they have been found insufficient to the safe conduct 
of business, there will be a correspondent indispo- 
sition in his neighbors to loan ; because, every one 
feels that there is, in such a case, more than a usual 
risk. Hence, such an individual cannot borrow, un- 
less at an advanced premium, or at a higher rate of 
interest. On the contrary, if a man have conducted 
an extensive business, for a long period, with unde- 
viating success, he attains to a high mercantile cred- 
it, and is enabled to borrow money at the lowest 
rates. But, if a merchant be known to be frequently 
embarrassed ; if he have ever, or specially have 
more than once, failed ; mercantile confidence in him 
is destroyed. No one will lend him, except on the 
most unfavorable terms ; hence, he can do business 
with nothing but his own capital, and, of this, he is 
generally destitute. Hence, a failure, and specially 
a second failure, is commonly fatal to mercantile 
success. Firm credit is rarely afterwards estab- 
lished. 

I am aware that these two causes of variation of 
risk, are apparently modified, by the practice of en- 
dorsing private notes. If I want money for the most 
hazardous investment, or am of the most doubtful 
credit, if I can offer my note, endorsed by persons 



OF RISK OF INVESTMENT. 341 

of established mercantile character, it is raised, at 
once, to par ; that is, the extra risk is immediately 
removed. But this modification is only apparent. 
The endorser will rarely do this for nothing. He 
either himself receives a premium for it, directly ; 
that is, he is paid for taking the risk of default of 
payment; or else, two persons mutually endorse for 
each other, and thus, the risk which A assumes for 
B, is paid for, by B's assuming a similar risk for A. 
It is singular that any one should ever ask another 
to endorse his note merely as a matter of comity. 
It should always be a matter of business, and liable 
to be paid for, like any other business transaction. 
A merchant should no more ask another to endorse 
his note gratuitously, than he should ask him to in- 
sure his house gratuitously. The nature of the trans- 
action is precisely the same. The risk in the one 
case, is frequently as great as in the other ; and it 
should always, as much in the one case as in the 
other, be a matter of compensation. Such, at least, 
seems to me to be the nature of the case. 

3. The risk incurrred in lending capital, is affect- 
ed by the character of the government. This affects 
both private and public contracts. 

If justice be well administered, and every man 
have all reasonable security that he will have the whole 
power of the society at his disposal, in order to en- 
force a just contract ; of course, the risk is less, and 
the rate of interest lower, than when experience has 
shown, that no such security exists. Hence, we see 
the economy of good legislation, and of a wise, just, 
and incorruptible Judiciary. The additional inter- 
est on capital, incurred in consequence of the bad 
administration of justice in a country, would an- 
nually pay the expenses of all the courts of law, ten 
times over. 

The same results flow from confidence, or the 

want of confidence, in the stability of a government. 

A revolution not unfrequently dissolves contracts, 

dissipates security, and renders obligations valueless, 

29* 



342 CONVENIENCE OF INVESTMENT. 

both by destroying the evidence of their existence, 
and annihilating the means of enforcing them. 
Hence, when such an event is feared, men will not 
loan, except at an exorbitant premium; and they 
generally prefer removing their property to some 
other country, to subjecting it, for any premium 
whatever, to the risks of a revolution. 

The same may be said of public contracts. Gov- 
ernments, in whose stability undoubted confidence is 
reposed, borrow the most enormous sums, at the 
lowest rates of interest. Those, which are in daily 
danger of being overthrown, can scarcely borrow at 
all, or, if they do borrow, it is at the most ruinous 
premium. The South American governments can 
scarcely borrow at any interest. Great Britain, not- 
withstanding her present enormous debt, borrows at 
three or four per cent., to any amount she pleases. 
Nay, so great is the public confidence in her perma- 
nency and integrity, that, probably, there is scarcely 
a civilized nation on earth, which does not at present 
own some share of her national debt. The greater 
the civil commotions of other countries, the more 
easily can she borrow ; because, capitalists naturally 
invest their property where they are confident of its 
security ; and confident that its interest will, under 
all circumstances, be regularly paid. 

II. The rate of interest is varied by the conven- 
ience of the investment. The convenience of 
an investment, depends upon several circumstan- 
ces. 

1. Facility of transfer. When a man loans capi- 
tal, he is, of course, ignorant of the future, and does 
not know how much he may need it, at some subse- 
quent time. If he loan at six per cent., for two 
years, he may, in six months, find some investment 
in which it would yield him eight percent. ; but, hav- 
ing loaned it for two years, he cannot now withdraw 
it. Hence, it is a great advantage, if it can be so 
invested, that he may, without loss, recall it at any 



CONVENIENCE OF INVESTMENT. 343 

moment ; while it is yet accumulating interest for 
just so long as it remains invested. 

2. Permanency of investment. If a man does not 
wish to withdraw a loan, it is an advantage to him 
to have it continue for a long period ; because, he is 
thus saved the loss of interest which would occur 
during the time of transfer, and the trouble and in- 
convenience of finding another borrower. This is 
of special benefit to widows, orphans, persons re- 
tired from business, and all those persons who wish 
not to labor with their own capital themselves, but 
only to live upon the interest of it. 

3. Punctuality in the payment of interest. It is 
a great convenience to those who invest capital, to 
be able to calculate with certainty on the payment 
of interest. They can thus, wtih ease adjust their 
expenses, both to the amount of their income, and 
to the time of their receipt of it. If they wish to 
re-invest the interest, they can make their arrange- 
ments with certainty ; and thus invest it with the 
greatest advantage. They are also saved the trouble 
of looking after their debtor, and they avoid the in- 
convenience of that personal altercation, which 
is liable to arise respecting pecuniary transac- 
tions. 

When any form of investment combines these ad- 
vantages, men are found to prefer it to one which is 
destitute of them ; and hence, they will loan their 
money on these terms, at a lower rate of interest 
than on any other. When a debt is in this form, it 
is said to be funded ; and the creditors are said to 
hold stock. Hence, public debts are generally thus 
arranged. The various companies, formed for 
banking purposes, and purposes of internal improve- 
ment, are constructed on the same principles. Every 
one who contributes a certain amount towards the 
capital of such a company receives a certificate that 
he owns such a share of that capital. He is enti- 
tled to his portion of the profits at stated times. He 



344 INTEREST DEPENDING ON PROFIT. 

may retain this certificate himself, as long as he 
pleases ; or he may sell it, at any moment, to any 
purchaser who may want it. Hence, money may 
always be borrowed, under these circumstances, at 
the lowest rates. 



SECTION III. 

OF THE RATE OF INTEREST, AS AFFECTED BY THE USE 
OF CAPITAL. 

When, however, the risk is the same, we find in- 
terest higher in some countries than in others ; and 
higher in the same country at one time than at 
another. Thus, when the security is equally good, 
interest is higher in this country than in Great Brit- 
ain ; and, in , this country, it is higher in the new, 
than in the older states. And, we also find, that it 
is lower now, in Great Britain, than formerly ; and 
that it generally becomes less, as a community grows 
older. 

This shows that there must be causes of variation 
in interest, aside from that of risk. A few of these 
remain to be considered. 

I. The average Profit of Capital. The profit of 
capital is that annual value which it yields to the 
possessor, after he has deducted the principal, and 
paid the expenses incident to his actual operation. 
Thus, if, by the use of one thousand dollars for a 
year, I am, after replacing the principal and all the 
cost of my operation one hundred dollars richer, this 
one hundred dollars is the profit of my capital. 
Now, the greater this is at any time, the greater will 
be the sum which I shall be willing to pay for the 
use of one thousand dollars. If, by the use of cap- 
ital, I can, after paying all expenses, realize twenty 



SUPPLY AND DEMAND. 345 

per cent., I can afford to pay more for the use of it, 
than if, after paying all expenses, I could realize only 
five per cent. 

To specify the various causes on which the differ- 
ence of profit of capital depends, perhaps would be 
impossible. Those which seem to me of the most 
general importance, are : 

1. Fertility of Land. He who wished to borrow 
money to invest in agriculture, could afford to pay- 
higher interest, when the land produced fifty bush- 
els to the acre, than when it produced only twenty- 
five bushels to the acre, provided he could procure 
the land for the same purchase money. 

2. Productiveness of Industry. The use of nat- 
ural agents adds greatly to the value annually pro- 
duced from a given amount of capital. This will 
tend to raise the price of capital ; since a man will 
give more for money to invest in a machine which 
will produce one thousand dollars a year, than in 
one which will produce only five hundred dollars. 
It is true that the influx of capital will tend to bring 
any one branch of industry, in process of time, to 
the general level. But that progressive increase of 
productiveness, which belongs to the progress of 
civilization, tends to keep up the price of capital, 
which would, otherwise, fall unreasonably low. 

3. The Demand for Exchange. The greater the 
demand for exchange, the more profitable must be 
that capital which is invested in exchange. In a 
town where mercantile business is brisk, and a man 
can sell all his stock at a good profit, two or three 
times in the course of a year, money will bear a 
higher nterest than in a town where exchanges are 
slow, and he must keep his goods on hand for a year 
or two. 

II. The Ratio between Supply and Demand. This 
produces the same effect upon the rate of interest, as 
upon every thing else. Whatever be the profit of 
capital, if the supply be very small, the price will 
rise in proportion ; since he, who by employing it at 



346 SUPPLY AND DEMAND. 

a high price, can make a small profit, will rather so 
employ it, than, by doing without it, make no profit 
at all. Thus, if by the use of one thousand dollars 
for a year, I could realize five hundred dollars, I 
might be willing to pay two hundred for the use of 
it, rather than not to have it ; for, in the latter case, 
I should gain nothing. If, then, there were but little 
capital in the market, and many persons were as 
willing to give this rate of interest as myself, I 
should be obliged to give it. But if, on the contrary, 
there were many persons desirous of lending, and 
much capital in the market, and I were the only 
person who would be willing to give this interest, 
they would underbid each other, and I should be 
able to procure it of him who would loan it to me 
at the lowest rate. I might then be able to borrow 
it for one hundred and fifty, one hundred, or sixty 
dollars per annum. 

Hence, the rate of money will vary in any coun- 
try, according to the effect of these two circumstan- 
ces. In a new and prosperous country, interest is 
always high. This results from several reasons. 

1. Land is very cheap, and at first is all of very 
nearly the same market price. In many cases, it 
can be had for almost nothing. 

2. Land is very fertile. The produce of a soil 
when new is generally greater than ever afterwards. 

3. The soil, never needing manure, requires but 
small investments of capital, and these are very rich- 
ly repaid. 

4. The inhabitants of a new country can carry 
with them but few of the conveniences of life. 
These must be purchased after they arrive there, and 
must either be made on the spot, or be imported. 
Neither of these can be done without capital. And, 
as the demand for these conveniences is imperative, 
and as the income of land is abundant, the settlers 
are willing to pay a high price for them. Hence, the 
profit, both of mechanical and of commercial labor, 



SUPPLY AND DEMAND. 347 

is very great ; and the price which is paid for capital 
is very high. 

5. The inhabitants of a new country have gener- 
ally very numerous exchanges with the aborigines. 
Such exchanges are exceedingly profitable. But these 
cannot be carried on without capital ; and, of course, 
capital, on this account, always bears a very high 
price. 

On the contrary, the supply of capital, in a new 
country, is generally small. 

1. Emigrants are, by no means, the most wealthy 
classes of a community. Those who are living in 
peace and prosperity at home, are not generally 
those who are most willing .to brave the perils arid 
hardships of the wilderness. 

2. Those who are not inclined to expose their per- 
sons to the hardships of a new country, are not in- 
clined to send their capital where they are not pres- 
ent to watch over it themselves. Hence, it is diffi- 
cult, for a while, for a new people to borrow ; and 
they can overcome this difficulty only by the pay- 
ment of a high interest. 

These are, as I suppose, the causes of the high 
rate of interest in new countries, on the borders of 
civilization, and generally, wherever savage and civ- 
ilized nations intermingle. 

As a country becomes settled, however, these 
causes begin to operate less powerfully ; and thus, 
the rate of interest gradually diminishes. 

1. The annual produce of the earth is, year after 
year, changed into fixed capital ; and thus the de- 
mand for capital is supplied from themselves. 

2. The fertility of the soil diminishes, so that it 
will afford to pay less interest. 

3. Land is sold at different prices, according to 
its fertility ; and as it rises in price, the degree of 
profit to the purchaser is diminished. 

4. The wants of the natives are supplied ; and, 
hence, one source of gain is dried up. 



348 FREEDOM OF CAPITAL. 

5. A more perfect knowledge of the country, and 
more perfect confidence in its prosperity, diminish 
the unwillingness of persons in older countries to 
loan ; and hence, capital from abroad, may be pro- 
cured with greater facility. 

Hence, the gradual operation of these causes, must 
tend to reduce the rate of interest in different coun- 
tries to the same average. 

Hence, the constant tendency of civilization is to 
the reduction of the rate of interest. As capital be- 
comes more abundant, in proportion to the uses that 
are to be made of it, it commands a less price ; that 
is, a man can gain less than formerly with a capi- 
tal of one thousand dollars ; and hence, he is will- 
ing to pay a less interest for it. But it is also to be 
remembered, that a much larger proportion of men 
are worth one thousand dollars than formerly, and 
that for one that was worth one thousand dollars, 
fifty years ago, there are fifteen or twenty who are 
worth ten thousand dollars now ; that is, men, with 
the same labor, are able to secure as many or more 
comforts than formerly ; but they are obliged to do 
it by the use of a larger amount of capital. They 
are obliged to labor with a larger capital, but that 
large amount is as easily procured as a less amount 
was formerly. Hence, the complaint so frequently 
heard of the increasing difficulty of accumulating 
property, is really unfounded ; and, taking the diffi- 
culty or ease of procuring capital into the account, 
the more advanced periods of society are as favora- 
ble as any to the industrious classes. 

III. The rate of interest is affected by the freedom 
of capital. By freedom of capital, I mean the un- 
fettered liberty of the individual to employ his capi- 
tal in any innocent way that he pleases. When this 
liberty is enjoyed, every one chooses that way in 
which he supposes that he shall be most successful ; 
that is, in which he will reap the largest profit. The 
larger the profit he realizes, the larger will be the in- 
terest which he will be willing to pay. When he is 



INTEREST AFFECTED BY TAXATION. 349 

obliged to withhold it from a mode of investment 
which he prefers, and to employ it in one which he 
does not prefer ; he must, therefore, divest it from a 
more to a less profitable mode of investment. Hence, 
as he is obliged to employ it in a less profitable, in- 
stead of a more profitable investment, he can afford 
to pay less interest ; and the price of interest, by the 
effect of this interference, must fall. Such must be 
the effect of all monopolies, and of all means by 
which the active power of capital is diminished. 

IV. The rate of interest is affected by taxation. 
A tax, abstracts its whole amount realized, besides 
the cost of collecting it, from the annual profits of 
capital. If a mechanic realize, from a capital of one 
thousand dollars, a nett saving of one hundred and 
fifty dollars, and is obliged to pay fifty dollars of 
this sum in taxes, he is in the condition of one who, 
without being obliged to pay taxes, realized a saving 
of only one hundred dollars. Hence, he would be 
able, if he conducted his business upon a hired cap- 
ital, to pay only a diminished rate of interest. And, 
if it be said that he may raise the price of his labor, 
and thus repay himself, it may be answered : 1st. 
By raising the price of his labor, he diminishes the 
demand, and his profits are thereby reduced, so that 
he will be no better able to pay the former interest. 
And, 2dly, as other men being taxed, will raise their 
prices, he is obliged to pay more for every thing that 
he consumes ; and thus, again, his ability is lessen- 
ed. Every one must see, that the immense sum 
which Great Britain annually pays, as the interest 
of her national debt, is so much abstracted from the 
profits of her capital ; and that the amount of profit 
to the individuals must be greater, just in propor- 
tion as that is diminished ; and that the profits of 
the capitalist and the producer would rise accord- 
ingly. 

From what has been said above, we come to the 
following general conclusions : 
30 



350 INTEREST AFFECTED BY TAXATION. 

1. That, other things being equal, interest will he 
high, when the risk is great ; and low, when the 
risk is small. 

2. That interest will he high, when the profit of 
capital is great ; and low, when the profit of capital 
is small. 

3. That both of these affect each other, within 
certain limits ; that is, when profit is great, if the 
risk be also great, interest will be very high ; be- 
cause, the increase of risk diminishes the supply. 

4. But, when profit is low, and risk is great, there 
will be no loaning whatever ; because, what is paid 
for risk, will be more than can be gained by use, 
and, hence, men could not profit by borrowing. 

5. And, hence, we see that the rate of interest will 
be always affected by every circumstance, which af- 
fects either risk or profit of capital. War, or the 
rumor of war, by increasing the risk, raises the rate 
of interest in property affected # by it. In property 
not affected by it, the same cause depresses the rate 
of interest ; because it diminishes the means and op- 
portunity for production, and, of course, diminishes 
the profit of capital. On the other hand, the dis- 
covery of any new mode of profitably employing 
capital, raises the rate of interest, by creating an in- 
creased demand for capital. 

6. And hence, again, we see that the rate of in- 
terest, at any particular time or place, is not of it- 
self any indication of the prosperity, or of the de- 
cline of a country. The indication is to be sought 
for, not in the rale of interest, but in the cause by 
which that rate is affected. 

1. Whenever the rate of interest is raised by in- 
crease of risk, this is an indication of adversity. 
Rise of interest, from such a source^benefits no one. 
It is of no service to the lender, because he receives 
no profit from the premium which insures him against 
loss. It is as profitable for him to loan for five per 
cent, without risk, as to loan for ten per cent., when 
five per cent, is for risk, and five per cent, for use. 
It is an injury to the borrower, because, one hun- 



OF LEGAL RATE OF INTEREST. o51 

dred dollars are worth no more to him when he pays 
five per cent, for risk, than when he pays nothing for 
it. Whatever, therefore, is paid for risk, is always 
a loss to both parties: and the more that is thus 
paid, the worse it is for both. Hence, the rise of 
interest caused by bad government, civil commotion, 
revolutions, wars, and general immorality, is always 
an indication of national decline ; and the fall of in- 
terest, produced by the contrary causes, is an indi- 
cation of national prosperity. 

2. On the other hand, the temporary rise of inter- 
est caused by increased productiveness, and the de- 
velopment of new national resources, is an indica- 
tion of national prosperity. It shows that more than 
ordinarily valuable modes of employing capital have 
been discovered, and, that men can afford to pay a 
larger price for the use of capital. I have, however, 
called this a temporary rise ; because, a rise from such 
a cause, will soon equalize itself. Increased produc- 
tiveness will soon supply capital, or it will be im- 
ported from less favored countries. Thus, in new 
countries, the rate of interest is high ; but this is by 
no means an indication of adversity, for such coun- 
tries, while paying so high a rate for capital, yet 
grow rich faster than those from which they borrow. 

3. Again : The gradual fall of the rate of interest 
caused by the diminution of risk, and the greater 
abundance of capital, is an evidence of prosperity. 
It shows that a larger proportion of the means of 
subsistence is falling to the share of every individ- 
ual ; that every man can more easily procure capi- 
tal ; and that every man, in order to support him- 
self, produces a larger amount than formerly, of 
whatever will contribute to the comfort and con- 
venience of his neighbor. 

4. On the other hand, the fall of the rate of in : 
terest, caused by a suspension of the means of pro- 
duction, is an evidence of national adversity. Sup- 
pose a war to occur between this country and France. 
The capital now employed in transportation, must 



352 OF LEGAL KATE OF INTEREST. 

be almost wholly unproductive. The capital em-, 
ployed in producing our exports to that country, must 
also be useless. Hence, the rate of interest would 
fall ; for, many men would have no business in which 
to employ their capital. The case would be the 
same, were a fall in the price of capital to proceed 
from civil commotion, or any similar cause. And, 
the adversity would remain, until the cause were 
removed. For, if capital were removed out of the 
country, until, from reduction in the supply, the rate 
of interest rose, the industry of the country would 
still be depressed, until, by peace, order, and good 
government, it regained its natural advantages. 

Hence, we see that, in order to form any correct 
opinion respecting the condition of a country, from 
the present rate of interest, we must always seek 
for the causes of that rate, instead of deciding from 
the mere rate itself. 

It is almost unnecessary, after what has been al- 
ready, advanced, to state that, in the view of the 
Political Economist, laws regulating the rate of in- 
terest are injurious to the prosperity of a country. 
Some of the reasons for this opinion, are the follow- 
ing : 

1. Such laws violate the right of property. A 
man has the same right to the market price of his 
capital, in money as he has to the market price of 
his house, his horse, his ship, or any other of his 
possessions. 

2. The real price of capital cannot be fixed by 
law, any more than the real price of flour, or iron, 
or any other commodity. There is, therefore, no 
more reason for assigning to it a fixed value, than 
there is of assigning a fixed value to any other com- 
modity. 

3. The price of capital, or money, is really more 
variable than that of any other commodity. Most 
other commodities have but one source of variation, 
namely, use or profit. But capital, in the form of 
money, is liable to two sources of variation, risk, 



OF LEGAL RATE OF INTEREST. 353 

and use. These vary, at different times, in different 
investments, and with different individuals. There 
is, therefore, less reason why the price of money 
should be fixed by law, than why the price of any 
thing else should be so fixed. 

4. These laws, instead of preventing, give rise to 
great and disastrous fluctuations in the price of 
money. 

Suppose that, to-day, money is worth, in the ordi- 
nary operations of business, ten per cent., and it is 
worth six per cent, in loan. A man will as soon 
loan, as employ it in business, if he possess more 
than he wishes to use. There will then be a fair 
supply of money in the market. But, let the pro- 
fits of capital rise, so that, in the ordinary operations 
of business, capital is worth twenty per cent. If, 
now, the rate of interest rose with this increased 
rate of profit, the same individuals would be as will- 
ing to loan, as before ; and thus, the supply follow- 
ing the demand, there would arise no peculiar scar- 
city. The high rate of interest, would also attract 
capital from abroad ; and thus, in a very short time, 
it would, in this particular place, be brought to the 
general level. 

But suppose that six per cent, were the highest 
legal rate of interest, and that he who loaned at a 
higher rate, was liable to lose both his principal and 
interest, and also his mercantile character. In this 
case, as soon as the profit of capital in business rose 
to fifteen or twenty per cent., no one, who could 
thus employ it, would loan it at six per cent. Hence, 
as soon as it thus rose, the supply would be immedi- 
ately diminished ; and this would, of course, cause 
a greater rise of interest. Those who, from honor 
or conscience, obeyed the laws, would withdraw from 
the market, and employ their capital in some other 
way ; and no one would loan, but those who were 
willing to risk the consequences of detection. These, 
having the money market in their own hands, will 
of course, charge for the use, and for the risk of de- 
30* 



354 OF LEGAL RATE OF INTEREST. 

tection ; and, hence, the price, in a few days, may 
become doubled or trebled. And, at the same time, 
although the real value of money may be fifteen or 
twenty per cent. ; yet, because the legal price is six 
per cent., there is no inducement for capital to come 
in from abroad, to supply the demand. Hence, the 
change in the money market has, by reason of- this 
law, no tendency whatever 'to regulate itself. 

It is I presume needless to add that such laws can 
never be enforced. Men in want of money will pay 
what they please for it, and those who choose to pay 
enough for it, can generally borrow. The effect then 
of the usury laws, is, merely to drive the best and 
most conscientious lenders out of the market, or else 
oblige them to lend by means of subordinate and 
less scrupulous agents. For this agency the bor- 
rower must pay and hence the additional rate of in- 
terest. To this it is objected, that money is not like 
other things, inasmuch as it is a necessary of life to 
the merchant, and therefore society must step in to 
deliver him from the effects of extortion. To this 
it may be answered as follows : 

1. It is manifest that this interference does not 
render the merchants' condition the better, but rather 
the worse. Though the assistance therefore be well 
intended, he may very well dispense with it. 

2. The greater the necessity of money, the more 
urgent is the necessity of leaving it undisturbed by 
legislative interference. It makes small difference to 
the community, whether the price of jewelry be fixed 
by law or not. But, suppose that when flour would 
bring ten dollars a barrel, the government forbade it 
to be sold for more than seven dollars. Who does 
not see that the flour would be all driven away and 
the people starved ? The same principle, for aught I 
see, applies to the rate of interest. 

Hence, I believe all enactments, establishing a 
legal rate of interest, are injurious and unwise. The 
only enactment of any value would be one which 
should define the usual rate, when nothing was said 



NATURE AND PRICE OF STOCKS. 355 

on the subject in the contract. The use of this would 
be to prevent disputes. This is always an advan- 
tage to both parties. 

I shall conclude this chapter, with a few remarks 
on the nature and price of stocks. 

I have already remarked, that, Avhen a company 
is formed for any purpose requiring capital, and 
yielding interest, the capital is divided into portions 
called shares, and, that any one has a right to sub- 
scribe for as many of these as he pleases. If the 
shares, for instance, are one hundred dollars each, 
he who takes one share, pays one hundred dollars, 
and so of any other number. For every share he 
receives a certificate of ownership, and, so long as 
he owns this certificate, he is a member of the com- 
pany ; his proportion of the capital is governed by 
the laws of the company ; he is entitled to the same 
rights as the rest ; and receives his proportion of the 
profit. These certificates are called stocks. They 
are transferable, like any other property, and the 
owner, as in any other case, sells them, if he wishes 
to do so, for whatever they will bring. The owner 
for the time being, is the stockholder ; is amenable 
in his proportion, to all the rules of the company ; 
and is entitled to his proportion of all the benefits 
accruing from the use of the capital. Such is the 
nature of bank, insurance, railroad, canal, and other 
stocks. 

The same principle is frequently applied to loans. 
Suppose a government wishes to borrow five millions 
of dollars at five per cent., for twenty years, the in- 
terest to be paid quarterly. The conditions of the 
loan are specified, and subscription books opened, in 
different places throughout the nation. The whole 
sum is divided into shares of which every one may 
subscribe for as many as he will. Every subscriber 
thus, in fact, loans to the government, on the terms 
proposed, as much as he subscribes for. When his 
subscription is paid, he receives a certificate, which 
contains an obligation of the government to pay the 



356 NATURE AND PRICE OF STOCKS. 

money at the appointed time, and which entitles him 
to receive the interest for the sum which he has 
loaned, at the rate and times specified. These cer- 
tificates are also called stocks, and are transferable, 
like any other property. Hence, they are an article 
of merchandise, like any thing else ; and, as per- 
sons are wishing both to buy and sell, every day, 
they are every day bought and sold, in great num- 
bers, in all commercial capitals. 

Now suppose money to be loaned in this way ; it 
is so much capital at interest, and it is affected by 
the same circumstances as other capital at loan. As 
the convenience of investment is, however, generally 
the same, the rate at which such stocks sell, will be 
affected wholly by profit and risk. 

1. Supposing the risk to be the same ; these stocks 
are affected by the profit annually paid on the in- 
vestment. Thus, suppose the risk to be nothing, and 
the common rate of interest in a community, to be 
six per cent. If I own a share equal to one hun- 
dred dollars, and it pay six per cent, interest, this 
share will always sell for one hundred dollars. Sup- 
pose that the ordinary rate of interest being the 
same, this share pays twelve per cent, interest. I 
can then sell it for two hundred dollars ; because, he 
who pays two hundred dollars for it, will receive in- 
terest at the rate of six per cent., which is as much 
as he would receive from any other investment. On 
the contrary, if this share paid but three per cent, 
interest, I could get but fifty dollars for it ; since 
three dollars is the interest of no more than fifty dol- 
lars. Thus, other things being equal, the price of 
stocks will always depend upon the interest which 
they pay ; and they will always sell for that sum, 
of which the dividend which they pay is the regular 
interest. 

This, however, is sometimes affected by the an- 
ticipations of men. A stock which pays very little 
now, may be expected to pay largely, at some future 
time. Its price may therefore, be kept up by this 



NATURE AND PRICE OF STOCKS. 357 

circumstance. On the other hand, a stock may pay 
largely now, but there may be a fear that it will 
soon become worthless ; this will, of course, depre- 
ciate it in value. 

So, also, of risk. The profit of stocks being the 
same, their price is inversely as the risk. If a stock 
pay the usual interest, but is in danger of sinking 
the principal, it will be depreciated accordingly. If 
a government pay good interest for a loan, but there 
be danger that it will be overturned by a revolution, 
the stock will, of course, fall. Thus, insurance stock 
never rises to the value of bank stock, when it pays 
the same interest, on account of the greater risk. 
Thus, also, steam-boat stock may pay twenty or 
thirty per cent., and yet sell at no advance ; that, is, 
it will be at par, because of the danger from fire and 
other accidents, and from the rapid wear of the prin- 
cipal. 

It is by circumstances like these, that the prices of 
stocks are determined. When a stock sells for what 
it cost ; that is, when a hundred dollars' worth of the 
original capital sells for one hundred dollars, that 
stock is said to be at par. When it sells for more 
than this, it is said to be above par ; and when it 
sells for less, it is said to be below par. Thus, if 
stock be sold for thirty-seven per cent, above par, a 
share that cost one hundred dollars, sells for one 
hundred and thirty-seven dollars ; that is, one hun- 
dred dollars receives an interest, which, at the ordi- 
nary rate of money, is as much as one hundred and 
thirty-seven dollars would receive. And so of any 
other case. 

Now, it must at once be perceived, that the opin- 
ion of the value of stocks is made up very much 
from expectations of profit or loss, or anticipations 
of increase or diminution of risk. Hence, the ru- 
mor of a war ; of the failure of a company, or of a 
bank ; of the probable insolvency of a government ; 
or the news of the gain or loss of a battle, may make 
a very considerable difference in the price of those 



358 NATURE AND PRICE OF STOCKS. 

stocks which would be affected by such information. 
Hence, the great liability to fraud, in all the opera- 
tions of the stock market. If a capitalist can get up 
a rumor which will depress any stock two percent., 
and buy one hundred thousand dollars' worth, dur- 
ing this depression, he may sell it again the next 
day for its original value, and thus, in the course of 
twenty-four hours, realize two thousand dollars, 
without either risk or trouble ; while the unfortu- 
nate seller is cheated out of this amount, without 
reason and without remedy. I do not say that all 
rumors affecting the price of stocks are thus 
fabricated. I only say, that such is the liability ; 
and it is not very unlikely, that what can so readily 
be done, has actually happened. And, when such 
rumors actually arise without collusion, it requires 
great sagacity to judge of the probability of their 
truth, and thus to buy or sell, according to the true 
judgment to be formed from the facts actually in 
possession of the community. 

And, besides this, another method may frequently 
be resorted to, for the sake of transferring money 
from the pockets of one class of citizens, into those 
of another class. Suppose a particular stock to be 
worth no more than fifty per cent. ; that is, to be 
capable of yielding no more than three per cent, on 
the original interest. Suppose there be only two 
or three hundred thousand dollars' worth of this 
stock in the market. If, now, a few individuals of 
large wealth combine together, they may easily buy 
up the whole of it, at this reduced price. The scar- 
city will at once excite inquiry, and will tend to cre- 
ate some demand. If, now, by means of other agents, 
they put small quantities of it into the market, and 
buy it in themselves, at gradually increasing prices, 
every one will become desirous of buying this stock, 
which, for a succession of days, has been rapidly 
rising in value. By careful management, it may 
thus be raised, in a few days, to seventy-five or one 
hundred dollars per share. If, then, these present 



NATURE AND PRICE OF STOCKS. 359 

owners carefully keep up the price, by buying little 
and selling much until they have disposed of the whole 
of their purchase, they will, in a few weeks, find 
themselves to have doubled their money. In the 
mean time, the cause of this rise having been re- 
moved, the effect ceases, and the present holders, 
who have purchased at seventy-five or one hundred 
dollars a share, find that their stock is worth no 
more than fifty per cent. Thus, fifty dollars per 
share, is, with great adroitness, transferred from the 
pockets of the many, into those of the few, and many 
are ruined, while a few are rendered enormously 
rich. I again say, that the rise and fall of stocks, 
are not always to be attributed to such causes. But, 
every one soon sees that such events are liable to hap- 
pen. It is, moreover, said by some persons, that 
they actually have happened. Of the honor or the 
honesty of such a transaction, it is not necessary 
here to speak. We will only take occasion to remark, 
that it behooves the uninitiated, who wish to escape 
these dangers, to be somewhat careful how they spec- 
ulate in stocks. 



CHAPTER THIRD. 

OF THE PRICE OF LAND, OR RENT. 

As the principal demand for land, is for the pur- 
poses of agriculture, we shall first consider Re?it, 
specially with reference to this form of utility. 

Land is the instrument, by which the farmer pro- 
duces the various vegetable and animal substances, 
which he offers in exchange. 

Like any other valuable instrument, it of course 
commands a price according to its productiveness. 
He who hired a loom, would pay more for a loom 
with which he could weave twenty yards a day, 
than for one, with which he could weave but ten 
yards a day. The case is the same with land. 

Now, the productiveness of land is made up of 
two things : 1st. Fertility; and, 2dly. Situation. 

1. Fertility. We all know, that the productive- 
ness of different soils is very diverse. Some soils 
will produce thirty, or fony, or fifty bushels of 
wheat to the acre, while others will produce, at the 
cost of more labor, not more than ten or fifteen 
bushels to the acre. Some soils will produce the 
most valuable vegetables ; and others, only the most 
common, and comparatively valueless. Some soils 
will produce no wheat whatever ; and others will, 
without manuring, produce a luxuriant crop, every 
year. Some, wholly unfit for tillage, can be used 
only for grazing; and, even when thus employed, 
yield to their stinted flocks, but a meagre subsistence. 
Hence, we see a reason for a great diversity in the 
price of land. And we see, at once, that a farmer 
might more profitably pay a rent, for one farm, than 
occupy another farm for nothing. 



PKICE OF LAND, OR KENT. 361 

2. Situation. The products of the farmer are all 
bulky, and, of course, acquire a very considerable 
addition to their cost, by transportation. Hence, if 
A, raise wheat, within a mile of a market town, and 
sell it for one dollar a bushel, and B, live one hun- 
dred miles off, and bring his wheat to the same mar- 
ket, he must sell it at the same price. The mer- 
chant who buys wheat, can give no more than the 
market price for wheat, whether it have been raised 
near or far off. It is no more valuable to him, for 
having been brought one hundred miles. If, now, 
the price of bringing a bushel of wheat one hun- 
dred miles be fifty cents, B, actually receives but 
fifty cents a bushel for his wheat, while A, receives 
a dollar. If the farms of both were of equal fertili- 
ty, that is, if both produced, twenty bushels to the 
acre, the farm of B, would be only half as produc- 
tive as that of A ; that is, he would receive only ten 
dollars per acre, while A, received twenty dollars. 
This amount of difference in situation, would be the 
same as a difference of one half in fertility, or 
actual productiveness. 

Hence, fertility being the same, productiveness 
will be as situation ; and, situation being the same, 
productiveness will be as fertility. And we see, that 
these circumstances will always, when opposed, 
counterbalance each other ; that is, land at such a 
distance from the market that it cost one half the 
price of products to transport them, will be of the 
same value, or actual productiveness, as land of half 
its fertility, contiguous to a market. And, hence, in 
estimating the productiveness of land, these circum- 
stances are always to be considered together. And, 
we see, that land of the greatest fertility may be so 
far from a market, that the cost of transportation 
will leave a profit insufficient to repay the cost of 
cultivation. In such a case, such land will be worth 
nothing. 

31 



362 PRICE OF LAND, OR RENT. 

With these principles in mind, we can easily see 
in what manner rent will be paid, for the different 
lands in a country. 

1. In the first settlement of a country, land is of 
no exchangeable value ; for every one may have as 
much as he pleases. Every one, therefore, being- at 
liberty to choose for himself, will select such a por- 
tion as he supposes most productive. Under these 
circumstances, land would bring no rent ; since no 
one would pay another for the use of that, which he 
could have for nothing. This would continue to be 
the case, until all the land of the first quality was 
occupied. Let us suppose, for the sake of illustra- 
tion, that this first quality of land were capable of 
producing one hundred bushels to the acre, and were 
all contiguous to the place of settlement, and that 
the second quality of land were capable of produc- 
ing but eighty bushels to the acre. 

2. Suppose, now, this settlement to increase so 
rapidly that the inhabitants could no longer be sup- 
plied with products from the land of the first class ; 
or, that these products were in such demand, for the 
purpose of exchange with other countries, that these 
lands could no longer yield the requisite supply. The 
price of grain would rise, so that a farmer could 
support himself by lands of the second quality ; and, 
as those of the first quality were all taken up, and 
he could obtain those of the second quality for noth- 
ing, he will proceed to occupy these. Although this 
quality of land would bear no rent. ; for it will bare- 
ly support him ; yet, it is better than starvation, and 
he will proceed to till it. But, as soon as this is the 
case, the lands of the first quality will begin to com- 
mand a rent ; because, it is as well for a farmer to 
pay twenty bushels a year, for land yielding one 
hundred bushels an acre, as to have land producing 
only eighty bushels, for nothing. And, yet more : 
As soon as land will pay a rent, it will at once com- 
mand a price ; because, if a man wish to invest cap- 
ital, he will be as willing to pay for land as for 



PRICE OF LAND, OR RENT. 363 

stocks, or any thing else, that sum, of which, at the 
ordinary rate of profits, the rent would be the inter- 
est. Thus, if land pay six dollars a year rent, per 
acre, if money be at six per cent, interest, it is worth 
one hundred dollars an acre ; since six dollars is the 
interest of one hundred dollars. And so, if the oc- 
cupier have the capital, it is.as cheap for him to buy 
the land, and receive the interest himself, as to hold 
the money himself, and pay the interest to another. 

3. Suppose, now, the price of grain, either for 
home, or for foreign consumption, to have risen so 
much, that the lands of the third quality, or produc- 
ing sixty bushels per acre, could now be tilled, and 
support the agriculturist. As soon as this became 
the case, lands of the second quality would yield a 
rent and would bear a price ; because, it would be 
as profitable for a farmer to pay twenty bushels a 
year for land of eighty bushels, as to cultivate land 
of sixty bushels for nothing. And, as soon as land 
of the second quality brought a rent, the rent of 
land of the first quality would also sustain a. corres- 
ponding rise. It would be as cheap for a farmer to 
pay forty bushels a year for land of one hundred 
bushels, as twenty for land of eighty bushels, or as 
to have land of sixty bushels for nothing. 

4. It is evident, that as the settlement of the coun- 
try advanced, rent and the price of land would go on 
augmenting, according to these principles. Land, 
which will merely support the cultivator, will bear 
no rent. But, all land of a greater productiveness 
than this, will yield some rent ; and, this rent will be 
precisely as its productiveness exceeds that of the 
poorest soil which is worthy of cultivation. And, 
so soon as any soil is tilled of a poorer quality than 
any which was tilled previously, all the soils of a 
better quality will rise in rent, and in price accord- 
ingly. 

5. Suppose the land of any nation to be limited by 
situation, or by territorial lines ; it is evident that the 
demand for food, increasing with the increase of the 



364 PRICE OF LAND, OR RENT. 

number of inhabitants, the land would, in time, be 
all occupied. As soon as the poorest land was ca- 
pable of yielding something, besides supporting its 
inhabitants, it would also pay rent. And thus, as 
before, the price and the rent of land would go on 
increasing, until it was arrested by some counter- 
acting cause. Such causes are the following : If the 
grain were exported, its rise of price would gradual- 
ly limit the foreign consumption; since other nations 
would begin either to raise it themselves, or else to 
procure it elsewhere. Or, if trade were free, as soon 
as its price rose so high that the nation itself could 
procure its supplies cheaper abroad than at home, it 
would import instead of raising it. As soon as this be- 
came the case, the price of grain would rise no higher ; 
and, at whatever rate of rent, this kind of land may 
have been when this change took place, from this 
time it would, at that rate, remain stationary. 

6. It is, however, to be observed, that this effect 
upon the occupation of land, would be rather a change 
in the manner of use, than in the utility of the land 
itself. It is evident that it could affect the demand 
for land, only for the production of those commodi- 
ties that are capable of distant transportation, such 
as bread stuffs in general. But a very large part 
of the productions of the earth are not capable of 
such transportation ; such are butcher's meat, which 
forms so large a portion of the food of man ; green 
vegetables ; milk and butter ; and the food of ani- 
mals, both for slaughter and labor. Just in propor- 
tion as a population increases, the demand for all 
these will increase likewise. Hence, it is reasonable 
to suppose, that although the importation of foreign 
grain checked the growth of domestic grain, the in- 
creased demand for these other domestic products, 
would keep the prices of land in a state of progres- 
sive increase. 

Besides. It is evident that the demand for these 
recent and untransportable productions of the earth, 
must be in proportion to the number and the wealth 



PRICE OF LAND, OR RENT. 365 

of the population. We have already shown, that 
the number of the population must be as the means 
of subsistence. Hence the cheaper grain and bread 
stuffs are, the more rapid will be the increase of pop- 
ulation, and the greater will be the demand for those 
products, of which the agriculturist at home must, 
from his locality, enjoy the monopoly. Hence it 
may reasonably be doubted, whether the corn laws 
of Great Britain, of which the object is, to keep up 
the price of land, and to sustain the agricultural 
interest, have really had this effect; and, wheth- 
er they have not, in reality, had the contrary 
effect. Had the price of corn been as low as it might 
have been, for the last fifty years, but for the duties 
on imported grain, the population of Great Britain 
would have been probably doubled, both from the 
greater cheapness of living, and also from the stim- 
ulus given to her manufactures, by the diminished 
price of all her products. In this case, the increas- 
ed demand for all the recent productions of the earth, 
would have been more than equal to all the benefit 
which even the agriculturist is supposed to have 
reaped, from the exclusion of foreign bread stuffs. 
If this be so, it is another illustration of the univer- 
sal law, that a selfish policy always in the end, de- 
feats itself; and reaps its full share of the gratuitous 
misery which it inflicts upon others. 

7. From the view which has been taken, it would 
at first seem, that the point of earliest settlement of 
a country, or at least its maritime frontier, would be 
its centre, where land would be of the highest price ; 
while all the lands of the interior, in proportion as 
they receded from it, would gradually decrease in 
value, until the cost of transportation of products, 
at last reduced their value to nothing. Such would 
be the case, were it not for various circumstances, 
which greatly modified this result. Some of these 
modifying circumstances, it is important to notice. 

1. As a people are thus spread over a large terri- 
tory, and are devoted to agriculture, it becomes ne- 
31* 



366 PRICE OF LAND, OR RENT. 

cessary that other persons should devote themselves 
to manufactures, and to barter and sale. Those who 
are thus employed, by necessity collect together, into 
towns and villages. Thus a large population is col- 
lected, which raises nothing from the earth ; and 
hence, their wants must be supplied by the agricul- 
turists in their neighborhood. Hence, immediate 
markets for produce, are created in every district; 
that is, although the farmer cannot remove his farm 
nearer to the market, the market has removed near- 
er to him ; and the diminution of distance has in- 
creased the productiveness of his farm, as much as 
though its fertility had been increased, or it had been 
removed to the sea-board. It is not fifty years, since 
land in the vicinity of Utica, New York, was valua- 
ble only for raising produce, which was sent to the 
city of New York, by the way of Albany ; and the 
rent, and consequent price of land, depended on what 
could be made by a harvest, after deducting from 
the market price of wheat, in New York, the cost of 
transportation between the two places. But, while 
the land has remained unmoved, population has 
moved toward it ; and Utica itself is a populous 
city, demanding for its supplies, the productions of 
all the surrounding country ; so that land, in its vi- 
cinity, bears, I presume, a very considerable propor- 
tion to the price of land in the vicinity of the city 
of New York itself. 

2. I have mentioned above, that productiveness of 
land, depended not only on fertility , but also on sit- 
uation, or facility of a communication with a mar- 
ket. Fertility being given, productiveness will be 
as situation ; that is, the greater the ease of trans- 
portation, the greater the actual productivenes; and, 
of course, the higher the value of land. Thus, if 
land produce one hundred bushels per acre, and it 
costs half its market price to convey it to the place 
of sale, it is only as valuable as land of half its fer- 
tility, contiguous to the market. If then, the cost 
of transportation can be, by any means, reduced, the 



PRICE OF LAND, OR RENT. 367 

productiveness of lands affected by this reduction, 
will rise in proportion. If, when the price of wheat 
is a dollar, it cost fifty cents to transport it, and the 
cost of transportation can be reduced to twenty-five 
cents, it is as good to me, as if the price had been 
raised twenty-five cents, or my land had increased 
fifty per cent, in fertility. Now, in the progress of 
a country, great improvements are generally effect- 
ed in roads, and the ordinary modes of transporta- 
tion, by which the value of the lands at a distance 
is generally enhanced. This result is however sig- 
nally effected by canals and railroads. The effect 
of these means of transportation is, to raise the 
prices of products in the interior, and, of course, the 
price of land in general, in the manner above stated. 
A very intelligent gentleman of Geneva, New York, 
informed me, that in the year 1821, the price of 
wheat in that town was thirty-one cents per bushel. 
In 1822, the price was thirty-seven and a half cents. 
The canal was opened during the next year, and it 
rose to sixty-two and a half cents. It has never 
since fallen below this latter price, and at the time of 
the conversation, 1835, it was selling at one dollar 
and thirty-one cents per bushel. The price of land, 
of course, has arisen in proportion. And this change 
has been for the benefit of all parties. The farmer 
is greatly enriched ; the laborer is better paid, a 
great number of persons are very profitably em- 
ployed and supported by labor on the canal, and 
wheat has been sold at a lower price to the consumer, 
than ever before. 

So far as we have treated of this subject, we have 
considered the fertility of land, as, on an average, 
equal ; and the facility of communication gradually 
diminishing, with the increase of the distance. Un- 
der these circumstances, it is manifest, that the price 
of land, in the interior, could not rise, unless the 
price of land on the sea-board had first risen. And, 
as land came into market, farther and farther from 
the older settlements, it would always indicate a 



368 PRICE OF LAND, OR RENT 



rise of price in the land which had first been culti- 
vated ; or in the most favorable localities. 

But it is manifest that the case may be far other- 
wise. 

1. The land in the interior may be the most fer- 
tile, and may enjoy the most favorable climate. The 
increased fertility, will, of course, counterbalance 
within a certain limit, the inconvenience of situation ; 
and mildness of climate, will render a less exertion 
necessary to procure the necessary provisions for the 
sustentation of animal life. Hence, the profit of 
labor will be greater, and the difference, in these 
respects, may be such, as to counterbalance entirely, 
within a given distance, the disadvantages of pos- 
ition. In this case, the interior will be settled with- 
out advancing the price of land on the sea-board. 
The advantages of both, though dissimilar, are, so 
far as productiveness is considered, equal ; and, of 
course, there is no reason why any one should pay 
any thing for a choice. 

And, secondly, as I have shown before, the diffi- 
culty of transportation may be so reduced, that it 
forms but a small part of the cost of whatever is 
-raised in the interior. When it costs but a few cents 
more a bushel, to transport wheat three hundred 
miles, than fifty miles, and the fertility of land three 
hundred miles from the market, is twice as great as 
that in the vicinity, it is evident, that the produc- 
tiveness of land three hundred miles off, will be 
greater than of that only fifty miles from the mar- 
ket. Hence, the price of the one might rise, with- 
out producing a rise in the price of the other. Nay, 
it is evident, that it might produce a contrary effect. 
If a farmer in the interior could raise wheat at a 
fair profit, and bring it to market for one dollar a 
bushel, and the farmer in the neighborhood of the 
market could not, at a fair profit sell it for less than 
one dollar and twenty-five cents, as the latter must 
sell his wheat at the current price, of course, he 
could not raise it at all. Hence, as a source of pro- 



PRICE OF LAND, OR RENT. 369 

fit is cut off, the annual produce is less, and the 
price of land will fall. 

Such has been, to some extent, the course of events 
in this country. The lands on the sea-hoard were 
first settled, and cultivation gradually extended to 
the west. At first, the average fertility of the lands 
newly occupied, was no greater than that of those 
first cultivated ; and the price of the old lands rose, 
as the new lands were occupied. By degrees, culti- 
vation passed over the Alleghany mountains, and 
entered the Yalley of the Mississippi. Here the soil 
is exuberantly fertile, and the climate mild ; but, the 
difficulty of communication with the interior, oper- 
ated as a severe check upon the growth of the new 
States, and the price of lands in the old States was 
not materially affected. As soon, however, as the 
use of steam opened the navigation of the Missis- 
sippi, the whole scene was changed. The inland 
States, became, in position, almost sea-board States. 
Their fertility was relieved from the inconveniences 
of position, under which it had formerly labored ; 
and the productions of a new and rich soil could be 
brought to market, with as little cost for transporta- 
tion, as that of lands within one or two hundred 
miles from the sea-board. The result has been, that 
the western farmers have undersold the farmers of 
the north and east ; and now, but little wheat is 
raised in any part of New England. This result 
has been increased, by the vast emigration to the 
west, which has diminished the number of laborers ; 
and at the east, by demand for laborers for manu- 
factures and internal improvements, which has with- 
drawn men from agriculture, and raised the wages 
of agricultural labor in the New England States. 
Hence, by the increased wages of labor, and the re- 
duced price of grain, the profit of agriculture has 
been reduced, and the price of land has fallen. I 
suppose that land, at present, in New England, for 
the ordinary purposes of agriculture is not generally 
as dear as it was twenty or thirty years since. 



370 PRICE OF LAND, OR RENT 



Yet, it by no means follows, that this deprecia- 
tion will increase. The settlement of the western 
States creates a vast market for manufactures, and 
a vast demand for mercantile exchanges. These re- 
quire capital, which is more abundant in the older 
States. The older States, also, have, by nature, 
greater facilities for such employments. Hence, the 
western States will become their customers, and the 
older States will become thickly peopled with a man- 
ufacturing and mercantile population. Land will be 
in demand, for supplying the immediate wants of 
such a population, and it will probably again soon 
rise. Each manufacturing establishment will be- 
come a centre, which will confer a high value on 
land in its immediate vicinity. By the multiplica- 
tion of such centres, the price of the whole will be 
augmented. 

I have thus far considered the price of land, only 
in so far as its mere productiveness is concerned. 
This will, of course, be the most ordinary arid gen- 
eral cause of the variation in its price, and in its rent. 
There are, however, other circumstances, which 
have a material effect upon its value, even in the 
same country, and under substantially the same 
laws. 

1. Beauty of situation. Of two farms equally pro- 
ductive, many men would give a decided preference 
to that which commanded a view of the richest and 
most beautiful prospect, or of which the trees and 
shrubbery were so arranged, as to give the greatest 
jileasure to the beholder. For this preference, most 
men would be willing to pay a considerably addi- 
tional price. This additional price will increase with 
the wealth and the improving tastes of the commu- 
nity. This is a circumstance which should always 
be borne in mind by the occupiers and owners of 
land. It costs but little more labor to lay out an or- 
chard regularly and beautifully, than to lay it out 
irregularly and clumsily. It costs nothing to let a 
tree stand, where it adds beauty to a prospect, and 



PRICE OF LAND, OR RENT. 371 

it costs very little to plant one, where it will have 
the same effect. A neat and convenient house, con- 
sumes neither more lumber, nor nails, nor labor, 
than a slovenly and inconvenient one. Arid yet, on 
these differences, very much of the exchangeable 
value of a farm depends. 

2. The price of land depends much on the intel- 
lectual and moral character of a neighborhood. 

Of two farms of equal productiveness, but in very 
dissimilar moral and intellectual communities, al- 
most every one would prefer that, which in these 
respects possessed the greater advantages. A man 
who has in any degree cultivated his own intellect, 
prefers the society of those whose intellects are also 
cultivated. A parent would always prefer a neigh- 
borhood in which his children would receive the ad- 
vantages of education. A man who had been ac- 
customed to religious observances, would choose to 
remove where he could enjoy the benefits of religious 
instruction. And every man, let his dispositions be 
what they may, will choose to reside in a neighbor- 
hood, in which the moral character of the people is 
a protection from dishonesty and robbery ; and 
where his children will be, as little as possible, ex- 
posed to the contamination of vice. It is manifest, 
that each of these considerations, would form a 
ground of preference for one situation over another, 
and for this preference, every reasonable man would 
be willing to pay. Were two farms thus differently 
situated, there would be many more buyers for the 
one than for the other, and the advantage would all 
be on the side of the most intelligent and moral 
community. 

Hence we see, that, besides the advantages which 
intelligence and virtue confer upon the character of 
a people, there is also an additional advantage, in 
the increased value of property which they produce. 
It may be fairly questioned, whether this, of itself, 
be not sufficient to repay the whole expense of liter- 
ary and religious institutions. There are towns in 



372 PRICE OF LAND, OR RENT. 

New England in which, within a few years, the 
price of real estate has doubled, for no other assign- 
able reason, than that of the literary and moral ad- 
vantages which they hold out to residents. This 
mode of increasing the value of property, seems to 
me deserving of more attention than it has general- 
ly received. 

Land is used for other purposes besides residence 
and agriculture. The principles upon which its value 
is determined, in such cases, are substantially the 
same as those mentioned above. 

1. Thus, in cities, land for the erection of build- 
ings has a two-fold value ; 1st, for dwelling houses; 
and, 2dly, for ware houses, and places for the trans- 
action of business. Its value, in both of these re- 
spects, depends not on fertility ', as it is not wanted 
for cultivation, but wholly on situation. A man 
needs a house which will furnish the necessary con- 
veniences for his family. He also wishes one, with- 
in a convenient distance from his place of employ- 
ment. The farther his dwelling is from his shop or 
his counting room, the longer time is occupied in 
passing from the one to the other, and the less are 
the conveniences of his residence. Hence, he will 
be willing to pay for the choice, and thus the price 
of land gradually diminishes from the centre to the 
circumference of a thickly settled town. 

But, in a place of mercantile business, edifices 
have another value, besides that of dwelling-houses. 
They are needed for the transaction of business. 
Where many exchanges are to be made, in the course 
of a few hours, every day, it is of importance that 
the exchangers should be as near together as possi- 
ble. And, where a large number of strangers is 
daily collected for the sake of making purchases, it 
is important to the seller, to be so situated as to be 
in their immediate vicinity. A merchant whose 
store is in the centre of business, can easily sell ten 
times as much in a day as one who is half a mile off 
from the centre. Hence, he is able, from the mere 



PRICE OF LAND, OR RENT. 373 

fact of difference in situation, to realize a much 
greater annual profit in the one place than in the 
other. For this difference of productiveness, he will 
he willing to pay a price ; and, hence, in large cities, 
the most central situations, or, as they are called, 
the best stands for business, command a very high 
rent ; and a correspondent price. A few square feet 
of land in the centre of the city of New York, will 
sell for more than many acres of the most produc- 
tive soil in any part of the Union. And, as the price 
of land, in such cases, is owing entirely to the de- 
mand for the purposes of facilitating trade, it can 
only rise with the increasing prosperity of the place. 
Hence, the rise or fall of real estate, in any town, if 
it be truly a rise in value, and not a rise from spec- 
ulation, is one of the surest indications of its mercan- 
tile prosperity or of the reverse. And, moreover, 
the rise of rents, in any given place, proceeds upon 
the same principles as those which we have already 
illustrated. Suppose the places of business, in a 
town, to be all occupied, within a given circle, and 
that they are sufficient for the accommodation of all 
the merchants who need them. If the town be 
prosperous, in five years, these accommodations will 
be insufficient, and buildings without this circle will 
come into demand for this purpose. Their rent, in 
consequence of this additional value, will rise. But 
this rise will be accompanied by a rise in the rent of 
the more favored situations. Those persons, whose 
employment requires a central situation, will occupy 
the centre, at a price which will exclude those to 
whom such a situation is less essential, and this 
process will go on, until those who are the least able 
to come into competition, pass out of the original 
circle, and thus create a new demand and raise the 
price of rent as it has been before suggested. 

2. Land frequently possesses an additional value, 

in consequence of its proximity to waterfalls. A 

waterfall provides for the manufacturer, a constant 

supply of momentum, which he can use by means 

32 



374 PRICE OF LAND, OR RENT. 



of very simple machinery. Suppose the interest of 
capital employed in the construction of furnaces, 
and steam machinery, and the annual expense for 
fuel and attendance in a given situation, were one 
thousand dollars, and the same power could be pro- 
cured at the same place, by appropriating a water- 
fall, by means of machinery of which the interest 
was no more than one hundred dollars ; the labor of 
the waterfall would be worth nine hundred dollars 
per year. Hence, supposing it to be in a situation 
in which there was a demand for this power, the 
land which gave the legal right to the use of it. 
would possess a value proportioned to the value of 
the power. Of course the price which it would com- 
mand, would depend upon the annual value of the 
privilege. This would be determined by the amount 
of applicable power, and by the situation. A power 
sufficient to move a dozen mills, would be twelve 
times as valuable, as that which could move only 
one. A water power near the sea-board, would be 
much more valuable than one in the interior. If it 
were at tide water, its annual value would be equal 
to the difference between its annual expense and 
that of steam. If it were at a distance from tide 
water, or the market, it would be equal to this dif- 
ference, minus the expense to be incurred, in the 
transportation of the material and of the manufac- 
tured fabric. As soon as the cost of transportation 
was equal to the difference of expense between the 
two modes of producing power, it would become' 
valueless ; because it would be as cheap to erect a' 
manufactory at tide water, and pay the expense of 
building and fuel, as to have the power for nothing, 
and pay the same expense for transportation. Hence, 
in the erection of mills and the establishment of 
manufactures, both of these circumstances are to be 
maturely considered, before a situation is decided 
upon. For want of such consideration, much pro- 
perty has been totally lost. 



KENT OF MINES. 375 

3. Mines. These depend upon the same princi^ 
ples as those which have been already illustrated, 
A water privilege is a mine of power, a bed of ore 
is a mine of metal. The former is frequently the 
most valuable possession. 

Suppose a farm to be worth the ordinary price of 
land ; and the owner discovers on it a bed of iron 
ore, which, after deducting the necessary expenses 
of working it, and paying the labor and skill neces^ 
sary to the operation, will yield one thousand dollars 
a year. The farm or the land necessary for the 
mining operations, will rent for one thousand dollars 
a year, or will sell for such a sum as will yield, at 
the ordinary rate, one thousand dollars as interest. 
In this case, it is manifest, that the original owner 
of the property will be a gainer by the discovery, to 
the full amount of the increase in the price of his 
land. But, here, the peculiar gain ceases. To other 
holders who may come after him, it is merely an in^ 
vestment, of the same nature as any other invest- 
ment ; and will yield no more than the ordinary rate 
of profit. 

The case is the same with a copper, a silver, or a 
gold mine. The owner of the land at the time of 
the discovery, becomes greatly enriched, in conse- 
quence of this new product, which may be derived 
from his property. But, after this rise, when a new 
purchaser comes into possession, the peculiarity of 
the gain ceases. A rich gold mine will rent or will 
sell for more than a poor one, and its price, or its 
rent, will be in exact proportion to its productive- 
ness, just as a farm, a mill-privilege, or any other 
property. It is a somewhat remarkable fact, that 
mines of the precious metals, are in general singu- 
larly unprofitable, after they have passed out of the 
hands of the original owners. It has grown into a 
proverb in South America, that, if a man own a 
copper mine he will grow rich, if he own a silver 
mine he will gain nothing, but if he own a gold 
Eiine, he will certainly be ruined. The fact how- 



376 INTEREST ON. REAL ESTATE. 

ever may be easily accounted for. The imagina- 
tions of men are always strongly excited by the 
contemplation of the precious metals ; and it is rare 
that any thing but experience can teach them, that 
they may buy gold too dear. Hence, they do not 
compute the chances of profit in the production of 
gold, as coolly as they do in any other case. But 
the production of gold, is governed by as fixed laws, 
as the production of wheat. Gold cannot, anymore 
than wheat, be produced by an effort of the imagin- 
ation. It is the result of labor, and skill, and ex- 
pense. And, if these be greater than the revenue, a 
man will as assuredly be ruined by producing gold, 
as by conducting any other unprofitable business ; his 
imagination to the contrary notwithstanding. 

The interest of land, or real estate in general, is 
commonly less than that of other property, that is, 
if any particular stock costs one hundred dollars, 
and yields as interest, but three per cent., it would 
not sell for one hundred dollars but for fifty or sixty 
dollars. But land which costs one hundred dollars, 
although it yield but three per cent., will sell for nine- 
ty or one hundred dollars. That is, men are will- 
ing to receive less interest for capital in land, than 
other property. It may be worth while to suggest 
the reason of this difference. 

1. Property in land, is considered more secure 
than any other property. The principal may be con- 
sidered indestructible. Hence it is the safest of all 
investments, and nothing is paid for the risk. 

2. The title to land can be more definitely secured, 
than that of any other property. The legal instru- 
ments, by which it is secured to the individuals, are 
a matter of public record. The boundaries of land, 
can be, and commonly are, ascertained with entire 
precision. The land itself cannot be removed. Hence, 
the ownership of it can be always ascertained and 
conveyed to posterity. 

3. Men generally derive some influence and con- 
sideration from the ownership of land, which they 



DISTRIBUTION ILLUSTRATED. 



377 



do not derive from any other possessions. In many- 
places, the right of suffrage is restricted to landhol- 
ders. Where this rule exists, it, of course, shows 
the degree of consequence which is attached to this 
sort of possession. And the fact, that it has so fre- 
quently existed, while the contrary rule has never 
existed, shows the general tendency upon the sub- 
ject. 

4, There is, I think, in the human race, a strong 
disposition to become the owners of land ; and a 
natural love to the pursuit of agriculture. Men of 
all professions, look forward to some period of life, 
in which, relieved from the toils of business, they 
may retire to the quiet country. To whatever ex- 
tent this disposition exists, it of course tends to 
raise the price of land, above that of other property, 
paying the same rate of profit. If a man receive a 
part ©f his remuneration in pleasure, he will be con- 
tent to receive less in the form of money. 

5. And, lastly, the natural progress of society 
tends to increase the value of landed property. This 
has been already illustrated in general, in the re- 
marks which have been made upon rent. And it 
must be evident, that, land remaining the same, and 
the population continually increasing, the demand 
for land must continually increase. And, besides 
this, the progress of society creates not only a more 
extensive demand for land, but a much greater va- 
riety of demands. As such is the tendency, men 
are willing to hold land at a less interest than other 
property, in the hope that the rise of price at some 
future time, will compensate for their present loss. 
Thus, men frequently invest money in wild lands, 
expecting to reap no profit from them for many 
years, but calculating upon a rise of price at some 
time or other, which shall abundantly repay both 
principal and interest. 

Such are, I believe, the principal circumstances 
which effect the distribution of the profits of capital, 
and the wages of labor. It may be useful to illus- 
32* 



378 DISTRIBUTION ILLUSTRATED. 

trate the mode in which they operate, in an individ- 
ual case. Let us take, for instance, a yard of calico. 

1. The price of a bale of cotton is made up of the 
rent of the land on which it grew, the wages and 
expense of the laborers who were employed in its 
cultivation, the labor and skill of the agriculturist 
who superintends the labor, the cost of seed, manure, 
utensils, &c. He who buys the cotton, pays a price 
sufficient to remunerate these laborers, pay the inter- 
est on the investment, and replace the expenditure 
for materials. He who raises the cotton, distributes 
the money which he has received, according to the 
principles which have been above suggested. 

2. The cotton is sent by the merchant in Mobile to 
New York, and sold at an advanced price to the 
merchant, in this latter place. This advance, is suf- 
ficient to remunerate the merchant in Mobile, and to 
pay the cost of transportation. The merchant at 
Mobile is thus paid for his labor and skill in select- 
ing and stowing the cotton ; and for the use of his 
capital whilst it was invested in cotton. The cost 
of transportation is made up of cost of investment 
in the vessel, in the wear and tear which it under- 
goes, in subsistence of mariners, and cost of insur- 
ance. This remuneration is distributed, as we have 
stated, according to the skill and labor of the several 
persons by whom it has been performed. This is 
paid by the merchant in New York, and adds so 
much to the price of the cotton. When paid, it is divid- 
ed between the owners of the vessel and the mari- 
ners, according to the laws which govern the wages 
of labor and of capital. 

The cotton is bought by the manufacturer, who 
pays the merchant in New York, what he paid to 
the merchant in Mobile, with an addition for trans- 
portation, agency, and the use of capital whilst it 
has been in his hands. He removes it to his manu- 
factory, cards, spins, and weaves it, and prepares it 
for the calico printer, to whom it is next sold. The 
calico printer pays the manufacturer what he paid 



EXTENT OF BUSINESS. 379 

the merchant, and an additional sum for the value 
which he has conferred upon it. This sum is the 
compensation to the manufacturer. With it, he re- 
munerates himself for his use of capital, labor and 
skill, and pays his workmen, for their labor, accord- 
ing to their skill and industry. 

It now goes through the process of printing, and 
is then sold to the merchant at an additional advance. 
This advance is sufficient to replace the price paid 
by the calico printer to the manufacturer, and also 
to pay the calico printer for the use of his capital, 
and the labor of his workmen. It is.by the mer- 
chant sold to the consumer. The consumer pays the 
merchant the price paid by him to the manufactur- 
er, and an additional sum, sufficient to remunerate 
him, for the use of his capital, skill, and labor. So 
that, when the article comes to the consumer, it is 
charged with all these previous prices, which have, 
in these various processes, accumulated upon it. 
The consumer pays what has been paid to the agri- 
culturist, the mariner, the cotton merchant in Mo- 
bile, and the cotton merchant in New York, the 
manufacturer, the calico printer, and the calico 
merchant. Each several amount has been charged 
upon it in its progress, and the consumer at last, pays 
enough to replace the whole. The case is the same 
with a watch, a knife, a plough, or any other article 
of merchandise. 

I shall conclude this chapter with two general re- 
marks ; one on the proper use of credit ; the other on 
the nature of insurances. 

From what has been said upon the nature of cred- 
it, it is evident that a merchant may easily carry on 
a business greatly beyond his actual capital, and 
even with no capital at all. For instance, he may 
sell wholly the goods of another, by purchasing en- 
tirely on credit. Or he may borrow capital of an in- 
dividual, or of a bank, and pay cash for his stock, 
and interest on his purchase money. In this case, 
he uses the property of the lender, instead of the 



380 EXTENT OF BUSINESS. 

property of the merchant of whom he purchases. 
Or he may possess capital, say ten thousand dollars, 
of his own, and may effect credits to twice or 
thrice this amount. Or, lastly, he may employ in 
trade no more capital than that which he actually 
possesses. 

Now it is manifest, that the jirofit must be, in these 
cases, very dissimilar. When a merchant owns all 
the capital he employs, he receives as profit, interest 
on his capital, and remuneration for his labor and 
skill. When he owns but a part, he receives inter- 
est for that part, and remuneration for his labor and 
skill in managing the whole. When he owns noth- 
ing, he receives nothing for interest on the capital, 
but only remuneration for his labor and skill in the 
management of the capital. 

The risk of failure, and the liability of injuring 
others, are also dissimilar. He who owns all the 
capital he uses, can injure no one ; because he can- 
not lose more than all, and, as he owns all, he is the 
sole sufferer. His payments may possibly be de- 
layed, but he will, in the end, be able to pay every 
one his due. 

When a merchant owns a part of the capital 
which he employs, he is not liable to injure his cred- 
itors, unless his loss be sufficient to absorb more than 
the portion which he himself possesses. But when 
a merchant trades wholly upon the capital of others, 
if his losses are more than sufficient to cover the ad- 
vance due to his labor and skill, he must fail, and 
his creditors must suffer. 

Hence, the moral and economical principles which 
should govern men in the transaction of business, 
under these circumstances, are somewhat dissimilar. 

1. If a man choose to squander or to risk his own 
property, though there may be a moral question in 
respect to his duty to God, there is none in respect 
to his duty to man. If he pay all his debts, no one 
has any claim upon him. Yet, so far as his own 
interest is concerned, he may do well to remember, 



EXTENT OF BUSINESS. 381 

that men will very naturally suppose, that after 
having wasted all that was his own, it will not be 
safe to trust him with what belongs to others. 

2. If a man trade in part with the property of 
others, he is bound so to conduct his affairs, as to 
expose their property to no unnecessary risk that 
can be foreseen. Hence, if their guaranty against 
loss, consist in that part of his stock which he owns, 
he is bound to guard against every risk, which could 
not be made good, by the sacrifice of his own pro- 
perty. This principle affects both the kind and the 
amount of business which he undertakes. It should 
be of such a kind, as is exposed to no greater risk 
than may be covered by his own property. It should 
be only to such an extent, that no ordinary fluctua- 
tion of business will endanger those who have con- 
fided in his skill and integrity. . If he, knowingly, 
act otherwise, he is dishonest. Nor is this all. If 
he really expose others to no risk, yet if 'he so en- 
large his business, that he is continually obliged to 
call upon his neighbors for assistance, and to throw 
himself on their mercy, to save him from loss 'of 
mercantile character, he trifles with his credit, and 
makes an unfair use of their kindness. A man who 
is always exposing himself to extreme risks, will 
generally expose himself once too often. 

3. He who trades wholly upon the capital of 
another, should consider himself essentially in the 
character of an agent, and at liberty to expose the 
property of his principal to no risk ; or which an 
unprejudiced person would not consider reasonable. 
He is to remember, that if he succeed, the owner of 
the property derives no benefit beyond the fair and 
ordinary profit ; but if he fail, the owner suffers all 
the loss, and, therefore, he has no right to seek to 
benefit himself, at the risk of impoverishing another. 

4. The same rule should govern the expenses of 
him who is engaged in business with the capital of 
another. He derives from his trade nothing more 
than the wages of his skill and labor. Within the 



382 NATURE AND USE OF INSURANCE. 

amount of these wages, his expenses should be re- 
stricted. If he expend more, he is living dishonestly 
on the property of another. If he expend the whole 
of these wages, he is accumulating no capital, but at 
the end of the year will be as poor as he was at the 
beginning. He can only become rich by reducing 
his expenses as far as possible below his income, and 
thus having, every year, something to invest as cap- 
ital, which shall give stability to his credit, and in- 
crease to his annual revenue. 

Of Insurance. When property of any kind is 
destructible, it is liable to be destroyed by accident. 
Thus houses, being -combustible, are liable to be 
destroyed by fire. Ships are liable to be wrecked by 
storm and tempest. This liability is called risk. It 
is evident that it may, under given circumstances, 
be estimated. Thus, if we know the value of all 
the houses in a given city, and the amount of value 
in houses, which, on an average, for several years, 
has been destroyed by fire, we may estimate how 
great the risk of fire in that city is. The case is the 
same with ships, or with any other property. 

Now this risk being thus known, one person may 
bear it as well as another. If I have a ship at sea, 
I may either bear the risk of losing it myself, or I 
may pay another person for bearing the risk for me. 
This transfer of risk is found convenient, and either 
companies or individuals are easily found, who, for 
a small addition to the actual value of the risk, are 
willing to insure any property that may be offered. 

From this view of the case, it is manifest, that 
insurance has no effect upon the fact of the loss. If 
a ship and cargo worth one hundred thousand dol- 
lars be sunk, precisely one hundred thousand dol- 
lars' worth of value is destroyed. The only effect 
of insurance is, to make the loss fall upon one per- 
son instead of upon another. The benefit of this 
transfer consists in this, that the loss is thus equal- 
ized. It is better for a community to divide a given 



NATURE AND USE OF INSURANCE. 383 

loss among a great number of persons, than to suf- 
fer it to fall exclusively upon one. 

And hence, inasmuch as every one has the power 
of avoiding risk, by paying a small premium ; every 
one whose property is small, and liable to be lost by 
a single accident, is negligent if he suffer it to remain 
a moment uninsured. Specially is this the case, 
when he holds the property of others ; or when their 
only security for payment depends upon the stock 
in trade which he possesses. 

And again. As insurance has no effect upon the 
fact of loss, the higher the premium of insurance the 
greater is the annual loss to a country ; because it 
shows us how great an amount of property is an- 
nually destroyed. Hence a sound policy would al- 
ways dictate the importance of taking every means 
to reduce the rate of insurance as low as possible. 
This can be done only by reducing the risk of the 
accidental destruction of property. On this account, 
the abundant supply of water is a matter of inesti- 
mable economical importance to a city. The differ- 
ence in the amount annually paid for insurance by 
the two cities of New York and Philadelphia is 
enormous. Nor is this all. New York, in one single 
night, has lost by fire, property sufficient to pay the 
expense of abundantly supplying herself with water 
three times over. The same principles would teach 
us the importance of accurate surveys of the coast, 
the erection of light houses, and of wise and judi- 
cious laws for the government of pilots. 



BOOK FOURTH. 



OF CONSUMPTION. 



CHAPTER FIRST. 

0? THE NATURE AND DESIGN OF CONSUMPTION. 

Of the nature of Consumption. Consumption is 
the destruction of value. By this is not meant the 
annihilation of the material, but only of a particular 
form of utility. Thus, if gunpowder be burned, if 
bread be eaten, if a tree be felled, the particular util- 
ity which each originally possessed, is destroyed for 
ever. And this destruction of value takes place, al- 
together independently of the result which may in 
different cases ensue ; because that destruction is as 
truly effected in one case as in another. A load of 
wood, when it has been burned, as truly loses its 
utility, that is, its power of creating heat, when it 
is destroyed in a conflagration, as when it is con- 
sumed under a steam boiler, or in a fire place, 
though the result in the two cases, may be very dis- 
similar. If bread be thrown into the sea, its utility 
is destroyed, just as much as if it were eaten; 
though, in the one case, there is no result from the 
consumption, and, in the other, it is the means of 
creating the vigor necessary to labor. 



NATURE OF CONSUMPTION. 385 

Hence consumption, viewed simply by itself, may 
be considered in the nature of a misfortune. It is 
the destruction of so much wealth as is consumed. 
A man, if he had his choice, would rather create one 
product without destroying another ; or enjoy a 
gratification, if it were possible, without rendering 
the thing enjoyed useless. But, inasmuch as it is 
the law of our Creator that we shall obtain our pos- 
sessions, and gratify our desires, on no other con- 
ditions than that of the destruction of value, we 
have no choice. We cannot cut up a hide of leather 
for the purpose of making shoes, without destroy- 
ing for ever its utility as a hide of leather. We can- 
not cut down a tree, and saw it into boards, with- 
out destroying forever its utility as a tree. We can- 
not enjoy the pleasure of eating an orange, without 
destroying for ever the power in that orange of af- 
fording to any one else the same pleasure. And thus, 
in general, consumption is onejpart of an exchange, 
in which we surrender one value with the hope of 
obtaining another ; and whether the hope be realized 
or not, the value consumed is surrendered, and sur- 
rendered forever. 

When, however, it is said, that the utility con- 
sumed is destroyed for ever, we mean only to speak 
of this particular utility. There may yet remain 
some valuable quality which has not yet been af- 
fected. Thus, if a linen garment be worn out, its 
utility as a linen garment is destroyed forever. It 
may, however, still possess an important utility, as 
a material for the manufacture of lint or of paper. 
Wood may be consumed for fuel ; and its utility as 
fuel may be destroyed for ever. A quantity of ashes 
however remains, which possesses an utility for the 
manufacture of soap. A pair of India rubber shoes, 
may be worn out, and yet possess a valuable utility* 
to the manufacturer of India rubber cloth. Hence 
we see the importance, in all cases, of entirely ex- 
hausting all the values contained in any product be- 
fore we surrender it up as worthless. For the want 
33 



386 KINDS OF CONSUMPTION. 

of this care, millions of property are annually was- 
ted. The difference between the cost of two estab- 
lishments, in the one of which every utility of every 
substance is consumed, and in the other of which, 
only the first utility is consumed, is frequently as 
great as the net profits realized in Jlie ordinary em- 
ployments of industry. 

1. Consumption may be either of labor or of capi- 
tal. A mechanic * who bestows a day's labor upon 
a table, consumes that amount of labor upon it. He 
also consumes the material upon which he has la- 
bored. He has received in return the table, and, if 
his labor and capital have been well employed, the 
result will recompense his consumption, both of la- 
bor and capital. So he who employs laborers to work 
for him, consumes all the labor which he purchases. 
Hence we see that every day spent, is, in fact, so 
much value consumed. If it bring no profitable re- 
sult, it is so much value wasted. 

2. Consumption may be either voluntary or invol- 
untary. It is voluntary when it is effected by design. 
It is involuntary when it is the result of accident. 
In either case, if there be consumption, there is value 
destroyed. The difference is, that, in the one case, 
there "is a profitable result expected ; in the other 
case there is none. If a loaf of bread become moul- 
dy by neglect, its value is destroyed, just as much 
as though it were eaten. The difference is, that, in 
the one case, the loss is total ; in the other case, the 
consumption of value creates a power to labor, 
which is of more value than the loaf itself. If, for 
the want of a fender, the fire fall out of the fire- 
place, and burn the carpet, the carpet is as effectual- 
ly consumed as if it were worn out by use. The 
difference is, that, in the one case, it affords a sub- 
stantial convenience, and in the other it affords none. 
If, by forgetfulness or neglect, a gate is left unlatch- 
ed, and it is beaten in pieces by the wind, it is as 
effectually consumed, as by the wear of several 
years. The difference is, that, in the one case, it 
answers for a long time the purpose of inclosure, 



KINDS OF CONSUMPTION. 387 

in the other case it answers no purpose at all. Hence, 
the necessity of care and vigilance in all the busi- 
ness of life. Almost every thing is constantly tend- 
ing to consumption. Vegetable matter decays. Ani- 
mal matter putrefies. Most of the metals may be 
corroded. Almost all our possessions are liable to 
accidental destruction, from fire, or flood ; from the 
cold of winter or the heat of summer. Hence, with- 
out our continual care, a continual process of con- 
sumption will be going on, by which our capital will 
be diminished. 

3. Consumption is either rapid or gradual. The 
consumption of wood for fuel is rapid. The con- 
sumption of wood, in consequence of the wear of a 
dwelling house, is gradual. But gradual consump- 
tion is as sure and as certain as though it were rapid. 
Hence, in estimating cost and expenses, unless an- 
allowance be made for wear and tear, our calcula- 
tions will not agree with the fact. If a man's fur- 
niture be wearing out every year, this average of 
loss, is as much to be taken into account, in estimat- 
ing his expenses, as the cost of the fuel which he 
consumes. 

The annual consumption of an individual, is the 
sum total of all the values which he destroys. Hence 
the materials upon which he operates, the tools 
which he wears out, the expenses of his household, 
both for materials and for labor, are all to be reck- 
oned as parts of his annual consumption. So, also, 
the values destroyed by a nation, are the national 
consumption. The exports of an individual or of a 
nation, are a part of individual or of national con- 
sumption, since value to the full amount of the ex- 
ports, is abstracted from the capital of the country. 
On the contrary, the imports are the product, or 
what the country receives back again in return for 
its exports or consumption. 

Every man in the country is a consumer. With- 
out consuming he could not sustain life a day. He 
must consume the food which he eats, the clothes 
which he wears, and the dwelling that shelters him. 



388 DESIGN OF CONSUMPTION. 

Hence, if he do not produce any thing, he is an ab- 
solute and useless burden upon the community. If 
he do not produce as much as he consumes, he is by 
the whole amount of that deficiency an unprofitable 
member of the body politic. 

A man cannot, honestly, consume more than he 
produces. And the more he produces, the more may 
he consume. Hence, the more industrious and the 
richer the community, the greater will be the con- 
sumption, and of course the demand. Hence, as we 
have said before, the richer the community, the bet- 
ter will it be for every class of producers. 

II. Of the design of Consumption. Consump- 
tion, as we have said, is the destruction of value. 
But no man, in his senses, will consume value with- 
out some expectation of advantage. Hence, the de- 
sign of consumption is always some advantage 
which cannot be obtained in any other way. 

This advantage is of two kinds. 1. The increase 
of value ; or, 2. The gratification of desire. 

1. The increase of value. This is the design of 
consumption in all the departments of industry. 
Thus, the farmer consumes seed, utensils, rent, 
manure, labor, and food for the sustentation of la- 
borers. These all are abstracted from his capital, 
and their value is destroyed, either wholly or in part, 
forever. But he consumes them cheerfully, in the 
expectation that the crop which he reaps will re- 
place them, and repay both the interest of his 
capital, and his various outlays for materials and 
labor, and leave him also a suitable recompense for 
his industry and skill. 

The manufacturer, consumes raw cotton, instru- 
ments, machinery, and labor. The value of these 
various products, is destroyed forever. But, by 
means of this destruction, he produces a fabric 
which repays all his consumption, and yields him a 
reasonable profit. 

The merchant collects the productions of his own 
country, and sends them abroad in his ship. He 
thus consumes these products, and also the wear and 



DESIGN OF CONSUMPTION. 389 

tear of his ship, and the labor, skill and subsistence 
of his officers and crew. His return cargo, if the 
voyage have been successful, replaces his cargo ex- 
ported, pays the expense of transportation, and af- 
fords him a compensation for his labor and skill. 

And thus, in all the operations of industry, the 
process of consumption, or the destruction of par- 
ticular values for the sake of producing other and 
greater values, is continually going on. And men 
consume values in this manner cheerfully, because 
they are aware that increase of value is to be effect- 
ed in no other way. 

2. The gratification of desire. In this case, the 
value of a product is commonly destroyed, without 
the anticipation of the creation of any other pro- 
duct by which it is to be replaced. The purposes 
for which values are consumed in this manner are 
various, 

1. For the gratification of those desires which are 
necessary to the preservation of life and health. In 
this manner, we consume food, clothing, and shelter. 
In this case, there is combined with the gratification 
of desire, a substantial benefit, in the health and 
vigor which we derive from suitable nourishment. 

2. The gratifications of the senses and the tastes. 
We consume values in the gratifications of sense, 
when we expend money for shows, for mere delica- 
cies of the table, for luxuries of dress and for any 
thing of which the only result is, the gratification of 
a physical appetite. In this case, our only recom- 
pense consists in the pleasure experienced in the or- 
gan of sense. The pleasures of taste, are enjoyed 
in painting, statuary, architecture, music, &c. In 
this case, besides the gratification of the taste, there 
is also an additional result, in the mental cultivation 
and refinement, which such pleasures promote. 

3. Intellectual gratifications. We consume money, 
for this purpose, in the purchase of books and phi-* 
iosophical instruments, and we consume time in the 
study and use of them. We here enjoy the p.leas- 

33* 



390 DESIGN OF CONSUMPTION. 

lire of intellectual exercise, and also obtain that 
knowledge, by which we are enabled to perform the 
duties of life with greater success. 

4. Social pleasures. We gratify our social in- 
stincts, by hospitality to our friends ; and thus 
strengthen the ties which bind us to the human race. 

5. Moral pleasures. In benevolence for instance we 
expend money for the good of others. In this case, 
we receive gratification in the act itself, and also 
cultivate in ourselves those dispositions, which make 
us more worthy of the regard of our fellows, and 
more well-pleasing to our Father who is in heaven. 

We have said that, by consumption, value is de- 
stroyed ; but it is destroyed with the expectation of 
realizing a more valuable result. Hence, we see 
that the character of this consumption, is to be de- 
cided by ascertaining how far this expectation has 
been realized. If a product of more value than the 
time and labor consumed, be created by the con- 
sumption, such consumption is called productive. 
Such is the case when a farmer consumes labor and 
capital, worth one hundred dollars, and realizes a 
harvest worth two hundred dollars. If the product 
be not equal to the consumption, such consumption 
is called unproductive. If no product at all be real- 
ized, the consumption is then a total loss. 

And, the same principles apply when consump- 
tion is effected for the purpose of gratifying a desire. 
If no such result be realized, it is a total loss. If the 
gratification be of less worth than the value con- 
sumed ; or if we have obtained a less amount, or 
less excellent gratification than we could have pro- 
cured by some other mode of expenditure, there is 
always a loss, although it may not be total, and the 
consumption is unwise. 

From what has been said, we may easily see the 
rules by which expenditure of all kinds should be 
governed. 

1. Inasmuch as consumption is a destruction of 
value, and annihilates forever the particular value 



DESIGN OF CONSUMPTION. 391 

which we consume, our consumption for the purpose 
of producing a given result, should be as small as 
possible. Whatever is consumed beyond what is 
necessary to accomplish our purpose, is so much ab- 
solute loss. 

2. The consumption being given, it should be our 
object, to derive from it as large a product or as val- 
uable a gratification as possible. Whatever is con- 
sumed, that does not conduce to this result, in every 
way of which it is capable, is so much utility 
thrown away. 

When these rules are perfectly obeyed, we enjoy 
as much as our circumstances allow ; and we also 
enjoy it, with as little expense to the means of hap- 
piness of others as the nature of the present consti- 
tution permits. 

Consumption is of two kinds, Individual and Pub- 
lic. Individual consumption, is what the individual 
consumes for his own personal profit or gratification. 
Public consumption, is what is consumed by the 
society, for the benefit of the whole. 



CHAPTER SECOND. 

OF INDIVIDUAL CONSUMPTION. 

The consumption of the individual, is the amount 
of value which each individual destroys either for 
his own personal -profit or for the gratification of his 
desires. 

Individual consumption is then of two kinds ; 
first what he consumes for the sake of reproduction, 
and secondly what he consumes for the gratification 
of desire ; or in other words, what he consumes in 
personal and domestic expenditures. We shall con- 
sider these subjects separately. 



SECTION I. 

OF INDIVIDUAL CONSUMPTION FOR THE SAKE OF RE- 
PRODUCTION. 

This is the consumption, which every individual 
effects, who carries on the operations of production. 
The farmer, the mechanic, the manufacturer, the 
merchant are all consumers, and are such in a great- 
er or less degree, according to the extent of their 
production. 

Productive consumption requires both skill and 
labor, while consumption for the sake of gratifica- 
tion requires neither. It requires labor and skill, so 
to consume seed and manure, &c, as to produce a 
loaf of bread, but it requires neither skill nor labor, 
to eat it after it has been produced. It requires la- 



CONSUMPTION OF CAPITAL. 393 

bor and skill so to consume wool and dye stuffs as to 
produce cloth ; and so to consume that cloth as to 
produce a suit of clothes, but it requires no skill or 
labor to wear them out after they have been pro- 
duced. 

On the other hand, productive consumption, is 
commonly attended with no immediate gratification. 
The farmer may prefer agriculture to manufactures, 
but he would not commonly labor for the mere pleas- 
ure of the operation. Could he secure his crop with 
half the present labor, or with no labor at all, he 
would doubtless do so. The case is the same with 
the manufacturer, or any other producer. 

We can rarely use the same value for these two 
distinct and opposite purposes. If a man consume 
one hundred dollars in amusement, or in ostentation, 
he cannot have it also as capital, to be employed in 
his trade. And, not only can he net have it note, 
but he can never have it again. If it be invested in 
reproduction this year, it may, by the next year, 
amount to one hundred and fifty dollars, and the 
year after, to two hundred dollars, and in twenty 
years it may become five thousand dollars. If it be 
spent on an entertainment, or a journey of pleasure, 
it is lost, and all that it might have subsequently be- 
come, is lost forever. This should be borne in mini 
by every man who wishes to rise to independence. 
Every dollar which is spent in self-gratification, is 
so much capital placed forever out of his power. 
And, on the contrary, every dollar which he invests 
in reproductive employment, may at any future time 
minister to gratification, or it may provide the means 
of much more valuable gratification in subsequent 
life. 

Consumption is either of capital, or of labor. 

I. Consumption of Capital. 

The principles which we have already endeavored 
to illustrate would suggest the following rules, re- 
specting this part of consumption. 



394 CONSUMPTION OF CAPITAL. 

1. Our Consumption of capital, in order to produce 
a given result, should be as small as possible. The 
ordinary maxim is as true as it is common, a penny 
saved is a penny earned. In estimating the profits 
of any operation, it is manifest, that he who has 
produced a value worth one hundred dollars, at an 
expense of sixty dollars, reaps a profit of twenty 
dollars more than he who has produced the same 
value, at an expense of eighty dollars. Thus, the 
farmer should economize to the utmost all his mate- 
rials. He who saves half a bushel of seed, in sow- 
ing an acre, enriches himself as much, as though he 
had reaped half a bushel more per acre. It is said 
that in China, sowing is always done by drilling. 
One of Lord Macartney's suit estimated that the sav- 
ing, throughout the whole empire, from this im- 
provement, is sufficient to feed the whole popula- 
tion of Great Britain. The same principle applies 
to mechanics, manufacturers, and all consumers 
whatever. It is, unfortunately, the case, that from 
"ivant of care and ingenuity, a much larger portion 
of value is commonly consumed, than is necessary 
for the production required. This is specially the 
case with fuel. Probably not more than one tenth 
of the heat given off by wood, is rendered servicea- 
ble by the common fire place. 

2. We should employ capital, of no greater value 
than is necessary to effect the production intended. 
Hence, every producer should make it an object of 
inquiry, to ascertain, so far as the present state of 
knowledge may enable him, in what manner he may 
effect his purposes, by the least costly materials. 
The merchant, on this principle, should, before mak- 
ing an exchange, ascertain what is the cheapest pro- 
duct at home, with which he will be able to procure 
a given amount of a product from abroad. Very 
much of the success of a producer must of course 
depend upon his skill in this respect. The discov- 
ery of a cheaper dye stuff, of equal goodness, or the 
exchange of one export for another, may frequent- 



CONSUMPTION OF CAPITAL. 395 

ly, of itself, be sufficient to render a man indepen- 
dent. I do not, of course, suppose that any man 
will be so simple as knowingly to expend more in 
production than he supposes necessary. To guard 
him against this folly is not my object. It is rather 
to incite every man to a more thorough and inti- 
mate knowledge of the principles, on which the op- 
eration which he conducts, depends. It is only by 
such knowledge, that improvements in the various 
departments of industry are to be effected. And 
hence we see the importance of knowledge, to every 
man in the community. 

3. It is important that every utility possessed by 
any substance, be entirely consumed. 

In order to secure this result, attention must be 
paid to two circumstances. First. All the frag- 
ments and remnants should be, so far as possible, 
employed to some valuable purpose. This principle 
is well illustrated in the various uses to which the 
horns of cattle are applied. The horn consists of 
two parts, an outward honey case, and an inward 
conical shaped substance. The first process consists 
in separating these two parts by means of a blow 
against a block of wood. The horny exterior, 
is then cut into three portions, by means of a frame 
saw. 

1. The lowest of them, next to the root of the horn, 
after undergoing several processes by which it is 
rendered flat, is made into combs. 

2. The middle of the horn, after being flattened by 
heat, and its transparency improved by oil, is split 
into thin layers, and forms a substitute for glass, in 
lanterns. 

3. The tip of the horn, is used by the makers of 
knife handles, and of the tops of whips. 

4. The interior or core of the horn, is boiled down 
in water. A large quantity of fat rises to the sur- 
face. This is sold to the makers of yellow soap. 

5. The liquid itself, is used as a kind of glue, and 
is purchased by the cloth dressers for stiffening. 



396 CONSUMPTION OF CAPITAL. 

6. The bony substance which remains behind, is 
sent to the mill, and, being ground down, is sold to 
the farmers for manure. 

7. The clippings and shavings, are also sold to the 
farmers, for manure, or are used in small quantities, 
for the manufacture of toys. * 

Now, it is evident, that if any part of this mate- 
rial were wasted, the cost of the manufactured arti- 
cles would be higher, and the gain of the producer 
less. And, we also see that he who first discovered 
the mode of rendering any one of these portions of 
a horn useful, must, by this single discovery, have 
made himself rich. 

And Secondly. All the values must be consumed in 
the most -profitable manner. It frequently happens 
that a producer wants but one value from a sub- 
stance for his -particular purpose, while another and 
an important value remains unappropriated. It is al- 
ways a matter of importance, to employ in the best 
manner every value which a substance is known to 
possess. Thus, after we have derived from wood, 
all the heat which it can evolve, it leaves ashes 
which possess an important value. After the oil 
manufacturer has expressed all the oil from the flax 
seed, the residuum is valuable food for cattle. The 
employment of this utility, of course, lessens the 
price of oil, and increases the demand for it. Hence, 
we see the superior economy of large establishments 
to small ones. A large manufacturing establishment, 
can carry on several distinct operations, for the 
sake of using these secondary utilities. In a small 
one, this would be impossible, and much must in 
consequence be wasted. Thus in connection with a 
large slaughter house, I have seen a soap and can- 
dle manufactory, a manufactory of glue, and one of 
neats foot oil ; while a large number of hogs was 
fattened with the refuse of these several establish- 
ments. In this manner every part of the slaugh- 
tered animal was profitably consumed. In small es- 

* Babbage, on Manufactures. 



ECONOMY OF LABOR. 397 

tablishments, a large portion of the fragments is, by 
necessity, wasted. 

II. Consumption of labor. 

The principles above illustrated would teach 
us : — 

1. To employ precisely as much labor as is neces- 
sary to accomplish the intended result. 

We should never employ more than is wanted. 
This generates idleness and negligence. One super- 
numerary laborer, is not only useless himself, but 
he generally requires the time of two or three others, 
to bear him company in idleness. 

We should never employ less labor than is want- 
ed. This produces confusion, and destroys the ad- 
vantages of correct division of labor. It saves noth- 
ing to employ one person less than is necessary in an 
establishment, and to suspend the labor of others 
several times in a day, in order to do the work which 
that one should have accomplished. 

In general, provided, of course, the work be well 
done, the less the consumption of labor the better 
for the producer. Hence the economy of labor sav- 
ing machinery. He who, by an ingenious contriv- 
ance, is able to save the hire of one laborer, will 
find himself, at the end of the year, richer by pre- 
cisely this amount saved. 

2. We should employ labor at no higher price, than 
is necessary to accomplish our object. 

Every important operation consists of several sub- 
ordinate operations, requiring very different degrees 
of skill in their execution. According to these de- 
grees of skill, the wages of labor are adjusted. Now, 
economy requires, that labor of no higher price 
should be employed on each several operation, than 
the importance of the operation requires. He who 
is able so to arrange his laborers, as to intrust, safe- 
ly, to labor worth fifty cents, what was formerly ex- 
ecuted by labor worth one dollar, makes a gain of 
fifty cents a day. Thus, in the power-press, the 
labor of press-work, which formerly employed two 
34 



398 ECONOMY OF LABOR. 

able-bodied men, is executed, in part, by animal 
force, or by steam power ; and the remainder by 
women. The reduction in price, thus effected, is 
very considerable. 

But while this is the fact, it is also the fact, that 
we never gain by employing laborers incapable of 
accomplishing the result. If a particular part of an 
operation require skill and labor worth five dollars 
per day, it is better to give this price, than to confide 
it to an incompetent person, who is willing to work 
for two dollars per day. Thus, a good painter of 
calico patterns, a good calico engraver, or dyer, may 
be cheaper at five dollars per day, than an inferior 
artist, even if the latter would offer to perform the 
labor for nothing. 

We hence see, again, the importance of an accu- 
rate knowledge of principles, to every one engaged 
in extensive production. It is by deep and thorough 
reflection upon every part of the process which he 
conducts, that a manufacturer is able to keep up 
with, and specially to add to, the improvements of 
the age, and to prevent himself from being undersold 
by his more enterprising and intelligent neighbors. 

3. The labor -paid for, should all be performed. 

Time, as it is frequently said, is money. It is 
surely money to him who pays money for it. And 
of course every hour for which he pays, that is spent 
in idleness or uselessness, is so much useless con- 
sumption ; or so much absolute loss. 

The causes of the waste of labor are various. 
Some of the more common are : — 

1. Want of superintendence. It cannot be sup- 
posed that laborers, if left alone, and if paid by the 
day, will labor as faithfully as if laboring for them- 
selves. Hence the necessity and the economy of ef- 
ficient superintendence. He who employs twenty 
men by the day, to perform a particular piece of 
work, will find that an efficient superintendent will, 
by preventing idleness, sauntering, and story-telling, 
save much more than his wages. And, hence, I 



ECONOMY OF LABOR. 399 

suppose that commonly, where the labor is of such 
a nature as to allow of it, it is cheaper to pay by 
the piece, than the day. In the one case, if a la- 
borer be idle, he wastes his own time ; in the other 
case, the time of his employer. It is easy to per- 
ceive which case is the more favorable to industry. 

2. Irregularity. This is a great source of waste 
of labor. Where tools are allowed to get out of 
place, materials to be deficient or unsuitable ; or 
where several laborers are obliged to stand idle, to 
wait for the completion of an operation which is done 
out of season, much time must, of necessity, be lost. 
In a shop containing a dozen workmen, if each one 
spend, on an average, half an hour a day in look- 
ing for misplaced tools, or in waiting for materials 
not at hand, this is a loss of more than half the wa- 
ges of one laborer a day. This, in a year, would, 
be sufficient to purchase the clothes of a small 
family. 

3. Defective tools. In order that the economy of 
labor may be as great as possible, the tools by which 
labor is saved, should be as perfect as possible ; 
otherwise, we derive only a partial benefit from the 
invention. He who employs a man to chop Avood, 
would certainly see the importance of furnishing 
him with a sharp axe. He who erects a fence, to 
save the labor of guarding his cattle, will certainly 
do wisely to keep his fence in good order. It is sure- 
ly less labor to mend a gap in a fence, than to be 
obliged to plant a field a second time ; because the 
grain has been destroyed by cattle, which that gap 
permitted to enter. It takes less labor to mend a 
leakage in a mill dam, than to rebuild the dam after 
it has been, by means of that leakage, carried away. 
Hence, we see the importance, of keeping every 
part of, an establishment in perfect order, and of al- 
lowing nothing to be out of repair, if it be possible 
to repair it. 

" I. remember," says Say, " being once a witness 
of the numberless misfortunes which a neglectful 



400 ECONOMY OF LABOR. 

housekeeping entails. For the want of a small latch, 
the gate of the poultry yard was forever open, there 
being no means of closing it externally, and many 
of the poultry were lost in consequence. One day, 
a fine young porker made his escape into the woods, 
and the whole family, gardener, cook, milk-maid, 
&c, presently turned out in quest of the fugitive. 
The gardener, in leaping a ditch, got a sprain that 
confined him to his bed for a fortnight. The cook, 
found the linen burnt that she had left at the fire to 
dry. The milk-maid forgot, in her haste, to tie up 
the cattle in the cow house, and one of the loose 
cows broke the leg of a colt, that was kept in the 
same shed. The linen burnt, and the gardener's 
work lost, were worth twenty crowns, and the colt 
as much more, so that forty crowns were, in a few 
minutes, lost, for want of a latch that would not 

hUTTP Prist r\-irwa +V.^.vN ~ ■£>>■»»» ~~->-~ /J TT>~1 f^«ir,^-»N~-r- 
. .-_!* :¥ V v"~J ""^x^ i-i.jLU.xi a icvv OUUo. [jl <_>i. o-jouxhjijlx^ , 

Book 3d, chapter 5.] 

Illustrations of the importance of having every 
instrument in order, and in place, are occurring in 
most establishments every day. They teach us, that 
economy of capital, as well as of labor, requires, 
that every thing should be done in time, and in sea- 
son ; that if a thing need to be done to-day, we have 
no means which shall enable us to estimate the loss 
that may ensue, by putting it oif until to-morrow ; 
and, that negligence is as much at variance with the 
laws of our Creator, as absolute wastefulness, inas- 
much as it exposes us to equally severe punishments. 
It would be well, if men would remember this, not 
only in the affairs of this life, but still more, in the 
affairs of another. 

Supposing now that both labor and capital have 
been invested upon the most economical principles. 
The object for which they have been thus invested, 
is the creation of products. Hence, the greater this 
product is, the more successful the investment, the 
better is it for the individual, and the better is it for 
the community. The object of the farmer is, with 



ECONOMY OF LABOR. 



401 



a given soil, a given expenditure of labor, of seed 
and of manure, to raise the greatest amount of value, 
in a harvest. This will generally, though not al- 
ways, be as the quantity. Fifty bushels of common 
apples will not sell for so much as forty bushels of 
good ones. One hundred pounds of coarse wool, 
will sell for much less than one hundred pounds of 
fine wool. Hence, his object should be, from a given 
expenditure, to derive the greatest amount of profit. 
It is, by thus adjusting his expenditure, and thus 
calculating the results, that an intelligent and 
thoughtful farmer will grow rich ; while all around 
him are remaining stationary or are growing poor. 

So, it is the business of the manufacturer to cre- 
ate, with a given expenditure, the greatest amount 
of value. If he can succeed in giving to his cloth 
a better dye, or can produce a more durable or a 
more tasteful fabric, or can adapt it better to the sat- 
isfying of any human want, its value is, by so much, 
increased, and he and the community are the better 
for the increased value of his production. 

In like manner, the merchant having arranged his 
exports with the greatest economy, should labor to 
import, with this expenditure, the greatest amount 
of value. He should send to the country, and at the 
time in which his own product will exchange for 
the greatest amount of whatever he wishes to pro- 
cure. 

It is evident, that, in order to do this, a systematic 
knowledge of the principles of any employment is 
necessary to the individual by whom it is carried on. 
A man, in order to be a skillful producer, must be 
acquainted with the laws of production; that is,, 
those laws of nature and of society, which govern 
the transaction in which he is engaged. Hence, we 
see the importance of accurate knowledge, and 
sound mental discipline, to all the classes of society. 

We see, in the above remarks, another illustration 
of the truth, that the benefit of one is the benefit of 
all, and the injury of one is the injury of all. If a. 
34* 



402 OF PERSONAL EXPENSES. 

man economize labor and capital, he increases his 
own wealth, and he also rescues as much as he 
saves, from actual destruction. The whole of this 
amount may go to the farther increase of produc- 
tion, or to the satisfying of human wants. The more 
he produces, the greater is his wealth ; and the 
greater is the value which is created for the good of 
the whole community. Hence, we see, that he who 
is honestly promoting his own welfare, is also pro- 
moting the welfare of the whole society of which 
he is a member. 

And as it is manifestly for the interest of the in- 
dividual, so is it for the interest of the society, that 
every producer should consume as little value, and 
produce as great value, as possible. Hence, we see 
the impolicy of those restrictions, which will not al- 
low the individual to purchase and to sell where he 
pleases. If he must give a higher price than is ne- 
cessary for his material, this is, by the difference, 
unprofitable cousumption. If he cannot dispose of 
it where he pleases, this is, by so much, unprofita- 
ble production, because he is unable to realize from 
his production as much as he would be able to real- 
ize, were he left to himself. 



SECTION II. 

OF CONSUMPTION FOR THE GRATIFICATION OF DESIRE. 

By means of the productive consumption above 
treated of, a man procures the means for this second 
kind of consumption. This means, however, it is 
always to be remembered, does not consist of his 
whole production, but only of the excess of produc- 
tion over consumption. If he live on capital loaned 
at interest, the case is the same. The money loaned 



OF PERSONAL EXPENSES. 403 

is, for the time, consumed. The interest paid, is the 
excess of the production over the consumption, and 
this, of course, is all that he has to appropriate to 
the gratification of his desires. 

Consumption for the gratification of our desires, 
may be considered from two points of view. First. 
Without reference to the circumstances of the indi- 
vidual, or to the relative value of the various modes 
of gratification ; and, secondly, with reference to 
these circumstances. 

I. Of consumption without reference to the cir- 
cumstances of the individual, or the relative value of 
the mode of gratification. 

These purposes have been already alluded to. 
They are generally comprehended under the follow- 
ing particulars : 

Expenditures for the necessaries and conveniences 
of living, as food, clothing and shelter ; for the grat- 
ification of the senses and the tastes ; for the pleas- 
ures of intellect ; for the pleasures of society ; and 
for moral pleasures. Under one or other of these 
simply, or under several of them combined, I believe 
almost all of our expenditures may be classed. 

Now if these be considered, irrespective of our 
circumstances, or of the intrinsic value of the grati- 
fications themselves, the principles of expenditure 
will be, essentially, the same as those which have 
been already illustrated. That is to say, if a par- 
ticular mode of living, or the enjoyment of a partic- 
ular gratification be determined upon, whether that 
determination be wise or unwise, economy teaches 
us to obtain it most perfectly, and at the least possi- 
ble expense. The question of its wisdom or folly, 
belongs to another part of the subject. A particu- 
lar mode of living, having been resolved upon, econ- 
omy will teach us to sustain it, at the least possible 
expense. Hence, in regard to capital, the rules will 
be : 

1. That the consumption of values be as small as 
is consistent with the accomplishment of our pur- 
pose. This is opposed to several errors. 



404 OF PERSONAL EXPENSES 

To purchasing more of any value than is wanted. 
The articles ordinarily consumed in a family, are 
rapidly destructible. If more be purchased than is 
wanted, it is liable to become useless, and, in this 
case, the loss of this excess, is total. By having a 
superabundance of any thing consumable, it becomes, 
in the eyes of those who use it, less valuable, and is 
used less carefully. And, if neither of these results 
be experienced, if an article be purchased a year be- 
fore it is wanted, the purchaser loses the interest, for 
a year, of the money expended. Hence, it is gen- 
erally as economical to purchase at retail, as at 
wholesale. 

Hence it is commonly wasteful to purchase any 
thing because it is cheap. If a man need any thing, 
its cheapness is a reason why he should buy it. But, 
if he do not want it, its cheapness is no reason at 
all. A man may buy stones very cheap, but it is 
doubtful whether he would be either enriched or 
made happier by the purchase. Many a 'garret is 
filled with great bargains ; which were purchased 
because they were cheap, and then laid away to rot. 

2. The consumption should be as perfect as jjossi- 
ble. When we have possessed ourselves of a sub- 
stance, it should not be thrown away, until every 
utility which it posesses has been exhausted. 

Thus, an article of clothing which will not an- 
swer any longer for one purpose, may answer very 
well for another. An article of food, which may 
not be used in one form, may be used in some other 
form. And hence, in general, nothing should come 
into a house, unless it be wanted, nor in a larger 
amount than it is wanted ; and nothing should leave 
it, until all its utility is exhausted. 

3. All the means should be provided for the most 
perfect production and consumption of values. 
Hence, every useful utensil should be furnished, and 
should be the most perfect of its kind. It is cheap- 
er to buy a coal hod, than to cany coal in a basket, 
and by saving a dollar in a utensil, ruin a carpet 



OF PERSONAL EXPENSES. 405 

worth fifty dollars. It is cheaper to have every de- 
scription of culinary vessel that may be needed, than 
to have food spoiled by being cooked in an unsuita- 
ble instrument. It is cheaper to have a bad fire 
place altered, at an expense of fifteen dollars, than 
to consume annually ten dollars more worth of wood 
than is necessary. 

Hence, it is also important, that every article pur- 
chased, be of such a nature as will admit of the most 
profitable consumption. If a man buy fuel which 
gives off very little heat, because it is at a low price, 
it is by no means certain that he has made a suc- 
cessful purchase. It should always be remembered, 
that we want a given amount of utility, and not the 
mere form in which it seems to reside. It is cheap- 
er to purchase a dollar's worth of utility for a dol- 
lar, than half a dollar's worth for seventy-five cents. 
Hence, the lowest priced products, are by no means 
always the cheapest. 

The same principles apply to labor. 

Economy directs, that in a household, we should 
purchase as much labor as we need, and of the kind 
that we need, but no more than we need. When 
we pay for useless labor, we throw money away 
ourselves. When we employ incompetent labor, we 
pay others to throw it away for us. 

These, I suppose to be the principal circumstan- 
ces, which should govern our expenditures. And, it 
will be seen, that they apply to all the conditions of 
men. Whether our expenditure be large or small, it 
should be conducted with economy. The object to 
be attained is, to secure as large an amount of grati- 
fication, at as small an expenditure as possible. To 
the man who has but two hundred dollars per year 
to spend, it is certainly important to spend it eco- 
nomically. To the man who has ten thousand dol- 
lars per year, it will generally be found convenient. 

Hence, it will be seen, that, in order to enjoy the 
comforts or the luxuries of life, at the least expense, 
care and superintendence, and knowledge of the 



406 OF PERSONAL EXPENSES. 

various operations performed in a household, are ab- 
solutely necessary. And as this department of con- 
sumption, in general, devolves upon the mistress of 
a family, we see how important to the execution of 
it with success, must be vigilance, care, intelligence 
and industry. The husband, by the employment of 
capital, labor, and skill, in productive consumption, 
secures an annual revenue, for the purpose of con- 
sumption in the various means" of gratification, 
whether necessary or superfluous. The expendi- 
ture of this annual revenue, or the making of those 
arrangements which govern the expenditure, gener- 
ally devolves upon the wife. If that expenditure be 
made without economy, either the gratifications 
which it might procure are never enjoyed, and by all 
the consumption, neither comfort nor pleasure is ob- 
tained; or else, if the gratification sought for be ob- 
tained, it i~ obtained at an expense absolutely ruin- 
ous. Hence, it will be seen, that the physical com- 
fort, as well as the means of happiness of both par- 
ties, depends more on the domestic education of the 
female sex than is ordinarily supposed. Affection 
will rarely exist in the atmosphere of self-inflicted 
poverty. No man can respect a woman, by whose 
caprice and ignorance of her appropriate duties, he 
is plunged into disgraceful bankruptcy, and wedded 
to hopeless penury. Nor let it be supposed, that no 
talent is requisite skillfully to superintend a house- 
hold. It requires at least as much ability to direct, 
with skill and on principle, the affairs of a domestic 
establishment, as to select a ribbon or dance a min- 
uet, to fmger a piano or to embroider a fire screen. 

II. Consumption considered in respect to the rela- 
tive value of the desire. 

The various objects of desire, by the possession 
of which our happiness may be promoted, may, 
with sufficient accuracy for our present purpose, be 
divided into moral, intellectual, social, and sensual. 

The attainment of happiness from either of these, 
commonly involves some expenditure of time, or of 



OF DIFFERENT MODES OF CONSUMPTION. 407 

property, or of both. Thus, we cannot by reflec- 
tion improve our own hearts, without the consump- 
tion of time, nor cultivate our benevolent sentiments, 
without the consumption of property. The improve- 
ment of our minds by reading and study, demands 
both time and books. We cannot enjoy the society 
of our friends, without the consumption of both 
time and property. And every one knows, that the 
gratification of our senses, whether intellectual or 
corporeal, consumes a large portion of the income 
of every individual. 

It belongs to the teacher of ethics, to show in 
which mode of expenditure a man may best secure his 
future happiness, and act most worthily of the moral 
nature with which he is endowed. The political 
economist looks upon the various modes of expendi- 
ture, simply as they affect the wealth of the individ- 
ual, and of the public. Yet, even in this view, it 
may not be inappropriate to offer a single suggestion. 
Inasmuch as we have been created with aptitudes 
for all these different modes of happiness, it is mani- 
festly the intention of the Creator, that we should 
enjoy, not merely one but all of them. As we are 
not merely sensual, but also moral and intellectual 
beings, it is as reasonable that we should expend a 
part of our time and property, in the pursuit of mor- 
al and intellectual, as that we should spend a part 
of it, in the pursuit of sensual gratifications. He 
who argued from the superior dignity of our nature 
over that of brutes, might perhaps urge that the for- 
mer was the more reasonable mode of expenditure. 
But the dignity of the race not belonging to the 
province of the political economist, we shall not con- 
sider the subject in this point of view. 

The principles upon which political economy 
would teach us to select our modes of gratification, 
are, I suppose, the following. First. Where the 
amount of gratification in two cases in equal, it is 
wise to choose that which is the least expensive. 
The reason for this is too obvious to need much il- 



408 OF DIFFERENT MODES OF CONSUMPTION. 

lustration. If a particular gratification can be pro- 
cured for one hundred dollars, and another, which 
will afford an equal amount of happiness, can be 
procured for ten dollars, the cheaper is to be pre- 
ferred ; because, while, in this case, we obtain an 
equal gratification, we have ninety dollars remain- 
ing with which to purchase other objects of desire. 
Secojidly. When two modes of gratification are, in 
themselves, equally productive of happiness, but of 
which, one tends to the wealth, and the other to the 
poverty, both of the individual and of society, the 
former is to be preferred. Thus, if it cost the same 
sum to spend an evening in intellectual improve- 
ment, that it would cost to spend it in a drunken 
frolic, and the pleasure in the two cases were the 
same ; inasmuch as intellectual cultivation tends to 
knowledge, which is a valuable consideration to ev- 
ery producer, and a drunken frolic has no such ten- 
dency, economy would teach us to spend the eve- 
ning in intellectual cultivation. 

If, now, we compare the various modes of expen- 
diture most common among men, I think that we 
shall find, that the economy of the moral and intel- 
lectual pleasures is somewhat overlooked. 

The expenditures for all the real wants and con- 
veniences of a human being, may, by industry and 
frugality, without great difficulty, be supplied. It 
does not cost much, to provide all that we need for 
wholesome and palatable food, for comfortable cloth- 
ing and shelter, and for all the furniture demanded 
for convenient domestic arrangements. Our greatest 
expenses are for those objects, which yield no other 
utility than the mere gratification of the senses, or, 
which are rendered necessary, by command of fash- 
ion, or the love of ostentation. Thus, in the pur- 
chase of a garment, or of an article of furniture, a 
part of the price is paid for the real utility which it 
possesses, and the remainder for that particular form, 
or color, or workmanship, which is designated by 
fashion. Now, it frequently happens, that this lat- 



OF DIFFERENT MODES OF CONSUMPTION. 409 

ter portion of the price is far greater than the for- 
mer. The same may be said of many of our ex- 
penses of the table and of various others. 

Now, that men should not, if they have the abil- 
ity, in any manner gratify their senses, and yield 
obedience to fashion, it is not necessary here to af- 
firm ; nor is it necessary that political economy 
should prescribe the limit, within which these grati- 
fications shall be confined. A few considerations 
for the sake of illustrating the comparative economi- 
cal advantages of other modes of gratification is all 
that will be here attempted. 

1. Moral and intellectual pleasures are by no means 
expensive. To spend time in moral cultivation, is 
no more expensive than to spend it thoughtlessly and 
frivolously. The time consumed in thoughtless dis- 
sipation, if employed in moral culture, would be suf- 
ficient to effect great changes in our habits and 
tastes. 

The pleasures of benevolence, so far as pecuniary 
consumption is concerned, are less expensive than 
those of the senses. Were the sums lavished in 
thoughtless caprice, in obedience to fashion, or in 
the gratification of appetite, to be reserved for char- 
ity, how great an amount of happiness might be 
created both in the benefactor and the recipient. 

The same may be said of intellectual pleasures. 
Books and all the means for intellectual gratification, 
may be had at an expense within the reach of a 
very large class of the community. The useless 
ornaments of a drawing room, would frequently pur- 
chase a considerable library. The sums of money 
annually paid, by most families, to satisfy the de- 
mands of fashion, would provide them with as much 
reading as they would desire. Now, when these 
two kinds of pleasure are equally set before us, and 
when the one may be procured at so much less ex- 
penditure than the other, it surely is worth the at- 
tention of every man, deliberately to inquire by 
which mode of investment he will best secure his 
35 



410 OF DIFFERENT MODES OF CONSUMPTION. 

own happiness. There seems something ill-adjust- 
ed, when the habitation of a moral and intellectual 
being, reminds us of every thing else than, that he 
is either moral or intellectual. 

2. Moral and intellectual pleasures tend to the 
wealth both of the individual and of society. 

The exercise of benevolence has several important 
economical tendencies. For instance, it tends di- 
rectly to cultivate the habits of self-denial and self- 
government, which are so essential both to industry 
and frugality. Sensual self-indulgence tends direct- 
ly to produce both indolence and capricious and 
reckless expenditure. 

Again. The habit of benevolence tends to mod- 
erate and correct that intense love of gain, which is 
so frequently the cause of ruin to enterprising men. 
In the management of any hazardous business, he 
will be the most likely to succeed, who looks with 
entire coolness on the chances of loss and gain. The 
too eager, governed by their imagination, rush into 
needless danger. The too cautious allow a fair pros- 
pect of advantage to pass by unimproved. The one 
is as liable to fail as the other. He who by the prac- 
tice of benevolence, has learned a more accurate es- 
timate of the blessings of wealth, will more proba- 
bly than either, judge correctly. The miser and the 
sensualist will fall into opposite extremes, one upon 
each side of him. 

Besides, the social benefits of benevolence are in- 
calculable. It unites together the various classes of 
men, by the strong ties of affection and gratitude. 
By bringing all classes of men more directly under 
the view of the whole mass of society, social re- 
sponsibility is increased, and the encouragements to 
virtue and the restraints upon vice are strengthened. 
When the rich are hard-hearted and luxurious, the 
poor are disaffected, anti-social and destructive. In 
so far as benevolence, therefore, tends to the im- 
provement of the social dispositions of men, it may 
lay claim to great economical advantages. 



OF DIFFERENT MODES OF CONSUMPTION. 411 

And the same is true of intellectual pleasures. A 
man cannot enjoy these without improving his 
mind, and rendering it a more valuable instrument 
both for the production of his future happiness, and 
the accumulation of wealth. Knowledge is power, 
in what sphere of life soever it be exerted. The 
gratification of the senses enervates the body, en- 
feebles the mind, and tends to render intellectual ex- 
ercise unpleasant, and to unfit us for any important 
or highly responsible exertion. 



CHAPTER THIRD. 

OF PUBLIC CONSUMPTION. 



SECTION I. 

OF TAXES, OR THE MANNER IN WHICH PUBLIC EXPENDI- 
TURE IS PROVIDED FOR. 

We have thus far treated of individual consump- 
tion, or of that destruction of values affected by the 
individual, in the accomplishment of his own pur- 
poses ; and for the gratification of his own desires. 
But, all the capital produced by a society, is not ex- 
pended in this manner. A part of the annual reven- 
ue of every individual, is contributed in some man- 
ner to the public, and is expended by the agents of 
the public, that is, by the government. This part 
remains to be treated of, under the head of public 
consumption. 

This expenditure is provided for by means of tax- 
ation. When a given sum is to be raised for the ac- 
complishment of any object, it is, by some mode of 
assessment, distributed among the various individ- 
uals of the community, and every one is obliged to 
pay the proportion with which he is charged. The 
sum thus collected is then, for the accomplishment of 
particular purposes, consumed by the agents into 
whose hands it is delivered. The consumption it- 
self is of precisely the same nature as that affected 
by individuals, that is, the value is destroyed ; and 
the utility consumed, is annihilated. If an individ- 
ual burn gunpowder, the value in time and material 
by which it was produced is destroyed ; if a hnn- 



OF PUBLIC EXPENDITURE. 413 

dred or a thousand men do it, the result is the same. 
If a man in the digging of a ditch consume the labor of a 
thousand workmen, and use the provisions necessary 
for their sustentation, the whole value, thus expended, 
is annihilated. And if a thousand men unite in the 
undertaking, the annihilation is the same. This is 
really so evident, that to illustrate it at length seems 
almost childish. Does any one doubt when a house 
is burnt down, whether the value of a house is or is 
not consumed, because the owner did not set fire to 
it himself. Does any merchant doubt, whether his 
property is diminished or not, when it has been 
wasted by a profligate clerk ? In a word, government 
is nothing but a system of agencies ; and property 
consumed by the government, is as really consumed, 
and its value as really destroyed, as though the in- 
dividual citizens consumed it themselves. 

Now, this being the fact, the rule by which con- 
sumption is to be judged of, is precisely the same, 
whether it be public or private. If the product crea- 
ted by the consumption, whether that product be 
material or immaterial, be of greater value than the 
product consumed, it is profitable consumption ; that 
is, the public receive in return a greater value than 
they parted with. If a less valuable product be 
created, than is consumed, it is unprofitable con- 
sumption, and the value might better have remained 
in the hands of individuals. If no product whatev- 
er be realized, it is a total loss ; and the value taken 
from the individual might as well have been thrown 
into the sea. Nay, had they themselves thrown 
the value consumed into the sea, there would have 
been a gain, in the amount of the expense of col- 
lecting and consuming it. And still more, if the 
value consumed produce no valuable result, but, on 
the contrary, be employed to promote the purposes 
of oppression and misrule, the evil is enormous. The 
possessions of the individual are taken away, not 
only without rendering him an equivalent, but for 

35* 



414 OF PUBLIC EXPENDITURE. 

the sake of employing other men to torment him, 
and deprive him of his dearest rights. 

It is very frequently asserted, that public expen- 
diture enriches a country, or that, at least, it is 
wholly innocent, since it quickens the circulation of 
money, and does no harm, inasmuch as all the mo- 
ney always remains in the country. To obviate 
such an objection, let us trace, from first to last, the 
passage of a product towards ultimate consumption, 
on the public account. The government exacts from 
the tax payer, the payment of a given sum in the 
shape of money. To meet this demand, the tax 
payer exchanges part of the products at his disposal, 
for coin, which he pays to the tax gatherer. A sec- 
ond set of government agents is busied, in buying, 
with that coin, clothing and other necessaries for 
soldiery. Up to this point, there is no value either 
lost or consumed ; there has only been a gratuitous 
transfer of value and a subsequent act of barter, but, 
the value contributed by the citizen, still exists in 
the shape of stores and supplies in the military de- 
pot. In the end, however, this value is consumed, 
and then the portion of wealth which passes from 
the hands of the tax payer, into those of the tax 
gatherer, is destroyed and annihilated. 

" Yet, it is not the sum of money, that is destroy- 
ed ; that has only passed from one hand to another, 
either with or without any return, as, when it passed 
from the tax payer to the tax gather : or in exchange 
for an equivalent, as when it passed from the gov- 
ernment agent to the contractor, for clothing and sap- 
plies. The value of the money survives the whole 
operation, and goes through three or four, or a dozen 
hands, without any sensible alteration. It is the 
value of the clothing- and necessaries that disappears, 
with precisely the same effect, as if the tax payer 
had, with the same money, purchased clothing and 
necessaries for his own private consumption."* 

* Say. 



OF PUBLIC EXPENDITURE. 415 

The consumption, then, is of the same nature, 
whether it be public or private. It is a destruction 
of value, and the rule by which we are to deter- 
mine, whether it be profitable or unprofitable is the 
same, in both cases. It is, by inquiring, whether 
the benefit created by the consumption, is greater 
than, equal to, or less than, the value of the product 
consumed. 

While, however, this rule is always to be adopt- 
ed, it is, as in the case of individual consumption, 
to be interpreted with a liberal and intelligent fore- 
cast. It must not, of course, always be expected, 
that the" product created by consumption, will be a 
visible, tangible, material substance. Thus, we see 
no physical, tangible product, as the result of taxes 
for the support of civil government. But, we receive 
the benefit in security of person, property and repu- 
tation ; or in that, condition of society, which, though 
it be incapable of being weighed and measured, is 
absolutely essential both to individual happiness, 
and individual accumulation. The same may be 
said in substance, concerning the taxes paid for gen- 
eral education. Here, whether the tax payer re- 
ceive his remuneration in instruction given to his 
own children, or not, he yet receives it, in the im- 
provement of the intellectual and social character of 
his neighbors, by which his property is rendered 
more secure, the labor for which he pays is better per- 
formed, and the demand for whatever he produces, 
is more universal and more constant. The same may 
be said of that public expenditure, by which the 
moral and social character of a community is ele- 
vated, the taste of a nation refined, and an impulse 
given to efforts for the benefit of man. With this 
view, no one could, oppose the expense incurred in 
bestowing upon public edifices elegance, or even,, in 
some cases, magnificence of structure ; in the pub- 
lic celebration of remarkable eras ; and in the re- 
wards bestowed upon those who have by their dis- 
coveries enlarged the boundaries of human knowl- 



416 OF PUBLIC EXPENDITURE. 

edge, or by their inventions, signally improved the 
useful arts. Political Economy is opposed to none 
of these forms of expenditure ; all that she requires 
is, that a valuable consideration be received in return 
for the consumption ; and that the consumption be 
not disproportionate to that consideration. 

Of the different modes by which the public expendi- 
ture is provided for. 

Taxes are of two kinds, direct and indirect. 

A direct tax, is a certain amount assessed upon 
every individual, in proportion to the property which 
he is known to j)ossess. In many of the towns of 
New England, an annual tax list is made out, in 
which the portion which every taxable inhabitant 
must pay towards supporting the expenses of the 
district, is specified. The apportionment is made 
out by persons appointed for the purpose, called as- 
sessors. If any individual consider himself as taxed 
too highly, he is at liberty to appear, and declare 
upon oath, the amount of property of which he is 
possessed. His assessment is then graduated, ac- 
cording to the amount to which he has sworn. 

An indirect tax, is levied upon articles of produc- 
tion, at some period during their passage from one 
possessor to another. Thus a tax, or as it is called 
a duty, is laid by this country on various goods im- 
ported from abroad, immediately on their arrival. 
This duty is paid by the merchant who receives 
them; and he adds this duty to the cost of the 
goods, when he sells them to the next purchaser. 
Thus, the price of the product is raised, by this 
amount, when it comes into the hands of the con- 
sumer. If broadcloth pay a duty of two dollars a 
yard, he who buys a yard of broadcloth pays two 
dollars a yard more for it than he would pay if there 
were no duty to be paid. If coal be taxed two dol- 
lars a ton, as it is at present, every consumer of for- 
eign coal pays two dollars a ton more than he would 
pay if no such taxwere exacted. The effect of this 



OF PUBLIC EXPENDITURE. 417 

tax is also to keep the price of all other coal two dol- 
lars a ton higher than it would otherwise be. 

Now, supposing the same sum were to be demand- 
ed for the service of the public, it may be asked, 
which mode of raising it is to be preferred. 

In favor of an indirect tax it may be urged, that 
it is raised with more convenience, and less liability 
to personal collision, between the tax payer and the 
tax gatherer. 

The imports of a country are all received at a 
comparatively small number of places, denominated 
ports of entry. Goods arriving at these places are 
all charged with the duty on their arrival ; and thus, 
the collection may all be accomplished in a short 
time, and with very little trouble. Besides, as the 
importer, who pays the duty, receives it back again 
from the purchaser of the goods, it seems to him a 
matter of small importance, whether it be high or 
low, and he is disposed to make but little trouble 
about it. The case is the same with every succeed- 
ing purchaser, until it comes at last to the consu- 
mer. The consumer may feel, that the product is 
dear, but if it be no dearer than he has always paid, 
he thinks but little about it ; and, if it be somewhat 
dearer than formerly, the rise and fall in the price of 
goods is so common a thing, that he imputes the dif- 
ference to any other cause, as soon as to the addi- 
tional duty paid to the government. Hence, it is 
frequently said, that people do not feel an indirect 
tax, which means, I suppose, that they do not know, 
either how much they pay, or when they pay, or 
whether they pay or not. 

On the contrary, it is, doubtless, the fact, that men 
feel direct taxes more sensibly, that is, they know 
when they pay them, and how much they pay. 
Here, then, is liability to ill feeling, and sometimes 
to resistance ; and, moreover, there is a possibility 
that an excessive parsimony may restrict the public 
means in such manner, as to prevent the execution 



418 OF PUBLIC EXPENDITURE. 

of works of real utility, if not of imperative ne- 
cessity. 

There is, however, a greater liability of injustice, 
in indirect than in direct taxation. As, when duties 
are laid upon goods, the tax payer knows very little 
of the amount paid, and is hence less careful to inquire 
on what principles the revenue is raised, there is a 
greater opportunity afforded, in this manner, of im- 
posing the public burdens unequally, and of impos- 
ing them for purposes at variance with the princi- 
ples of the social compact. Hence, a majority may 
impose taxes for the benefit of a part, and not for the 
benefit of the whole ; and the matter can easily be 
so mystified, that the sufferer can excite but little 
sympathy. I do not deny that direct taxation is lia- 
ble, in some cases, to the same abuse ; as, for in- 
stance, when the city and country interests strive to 
shift the burden of taxation upon each other. I only 
say, that the evil is not so liable to happen in the 
one case as in the other, and when it does happen, it 
is more readily exposed. 

Aside from irregularity in the assessment of indi- 
rect taxes, it may be observed, that, in their very 
nature, they are liable to objection, because they do 
not impose the public burden, in any manner in pro- 
portion to the share which the individual receives of 
public protection. The indirect tax, is paid by the 
consumer. Hence, he pays, not according to the 
benefit which he receives from the existence of civil 
government, but according to the amount of produc- 
tion which he consumes. Hence, he who possesses 
a million dollars' worth of property, if he consume 
no more than he who lives by his daily labor, will 
pay no larger share of the public burden. Hence, 
a manifest inequality is involved in the original con- 
ception of an indirect tax. 

The same remark may however be applied in part 
to direct taxation. It may be said, that the tax pay- 
er here raises his price, in such a manner that he 
only pays a part of the tax assessed upon him, and 



PRINCIPLES OF TAXATION. 419 

that the remainder is paid by the consumer. This 
is, in part, true, but I think not by any means to the 
extent that it is true of indirect taxation. He whose 
actual property is taxed, cannot raise the price of his 
commodities, with such accuracy as the merchant, 
but must bear his proportion without the ability of 
so readily shifting it upon another. Hence, direct 
taxes, if equally imposed, are commonly more just ; 
that is, they derive the support of government from 
the individuals, more in proportion to the degree of 
benefit which each derives from the government. 

In favor of direct taxation, it may also be added, 
that it is decidedly more in harmony with the genius 
of a republican or representative government. Such 
a government, proceeds upon the principle, that the 
people are the fountain of power, and are competent 
to govern themselves. Now, such a government 
ought not, surely, to act upon the directly opposite 
principle, that the people ought not to know what 
they pat/, or when or how they pay. They are the 
party, from which, specially, nothing of this sort 
should be concealed. They should know vjhat, and 
hov) much, they contribute ; and, also, in what man- 
ner, whatever they contribute is expended. It is in 
this knowledge, and in the judicious use of it, that 
their safety consists. To me, therefore, the consid- 
eration, so frequently urged in favor of indirect tax- 
ation, that the people do not feel it, is one of the 
strongest arguments against it. The more a people 
feel taxation, and the more jealously they watch 
over the public expenditure, the better it is for them 
and for their rulers. 

Of the principle by which taxation should be regu- 
lated. 

I have already stated that the several members of 
a society, should be taxed in proportion to the bene- 
fit which they receive from a government. Thus, if 
a government protects for one man, one hundred 
thousand dollars' worth of property, and for another 
only one thousand dollars' worth, the former should 



420 PRINCIPLES OF TAXATION. 

pay one hundred times as much towards the public 
expenses, as the latter. So far as this is evidently- 
just. But it may be questioned whether justice 
might not go somewhat farther, inasmuch as, a per- 
centage of his income, which would not abridge 
even the luxuries of the rich, might materially cur- 
tail even the necessaries of the poor. But whether 
the rich ought to be taxed more than a pro rata pro- 
portion or not, I think it evident, that taxes should 
be so arranged, that individuals should, in so far as 
possible, pay in proportion to their property ; that is, 
in proportion to the amount of protection which 
they receive of the government. Now, inasmuch as 
indirect taxation, if laid indiscriminately, would ap- 
portion the public burden on no such principle, it is 
evident, that such taxation, should be made discrim- 
inately : that is, that articles of necessity should be 
either exempt from taxation, or taxed very lightly ; 
and articles of luxury, or those used chiefly by the 
rich, should bear the greater part of the burden. 
This would lead us to the following conclusions : 

1. Property below a certain amount, might very 
properly be exempt from taxation. 

The poor ?7ian , s clothes and bedding, his cow and 
his pig, should never be enumerated among taxable 
property. 

2. The necessaries of life, if taxed at all, should 
be taxed at the lowest rates. Of these, the rich and 
poor must consume nearly equal quantities. But 
they consume only a fraction of the rich man's in- 
come, while they consume almost the whole of the 
poor man's earnings. A tax on bread stuffs, fuel, 
coarse clothing, or iron, diminishes, essentially, the 
comforts and even the necessaries of life, of a very 
large proportion of every community.^ 

* It is somewhat singular, that, with a surplus revenue on hand 
of forty millions of dollars, we arc at the present moment, in this 
country , paying a duty of six cents a bushel on imported coal, from 
five to eight cents per pound on candles, four and five cents per 
pound, on cordage, three and a half cents per square yard, on cot- 



PRINCIPLES OF TAXATION. 421 

3. Taxation should be the heaviest upon articles 
of luxury and ostentation ; not for the sake of inter- 
fering with these modes of pursuing happiness, hut 
because those who are able to expend in this man- 
ner, would not in any other manner pay their pro 
rata portion of indirect taxation and they are able 
to bear, with the least inconvenience, the expenses 
of government. The convenietices of living, and the 
means of accumulation, should bear the next por- 
tion of the burden. He who is able to furnish him- 
self with the conveniences of living, is always able 
to pay a portion of the expenses of government ; and 
he who possesses means of accumulation, can al- 
ways devote some part of that which is annually 
accumulated, to pay for the protection which he re- 
ceives. Thus, carpeting, is a more fit subject for 
taxation than bread stuffs or fuel. Thus, also, a 
farmer's wagon, or a merchant's ship, may justly be 
taxed, but they ought not to be taxed in the same 
proportion as a gentleman's coach. I have spoken 
of the expenses of civil society, as a public burden. 
It ought, however, to be remarked, that this is one 
of the burdens which a good citizen should be the 
most willing to sustain ; as it is a mode of expense, 
for which he receives a most abundant equivalent. 
If any one doubt this, let him ask himself, what 

ton bagging, from ten to thirty dollars per ton, on iron, ten cents 
per bushel on salt, one dollar and fifty cents per one hundred and 
twelve pounds, on steel, and four cents per pound together with 
forty per cent, ad valorem, on wool. And, what is still more sur- 
prising, while the best land in the world, in the vicinity of navi- 
gable waters, may here be had for one dollar and twenty-five cents 
per acre, we are importing bread stuffs from every port in Europe, 
flour is at ten or eleven dollars a barrel, and we are paying a duty 
of nearly twenty-five cents a bushel on wheat, and fifty cents a 
hundred pounds on flour. These are all, absolutely, necessaries of 
life, and by far the greater part of the consumption of them, must 
be among the poor. On the contrary, coffee, tea, dried fruits, and 
spices are admitted duty free, and wine and silks at the very lowest 
duties. And this is at a time when all the articles of prime ne- 
cessity are excessively dear. To render evident either the wis- 
dom or the justice of such a policy, would require a great many 
words. I fear it could not be done by arguments. 

36 



422 PRINCIPLES OF TAXATION. 

expense would be necessary to secure for him, and 
his property, that protection which he now receives 
in return for the trifling sum which he pays in tax- 
es. The sum paid for the necessary expenses of 
civil government, is very trifling, when compared 
with that which is annually expended in journeys of 
pleasure, in luxuries of the table, in ornaments of 
dress, nay, in profligate amusements and vicious in- 
dulgences. Every good citizen, while he is under 
obligation vigilantly to watch over the manner in 
which public money is appropriated, is bound to 
contribute, cheerfully and liberally, for every pur- 
pose required by the public good. 

It will scarcely be necessary to add, after what 
has been said, that a surplus revenue is a public 
nuisance. It gives to the government a control over 
the monetary affairs of the country, at the best, dan- 
gerous ; and a control which is very liable to be ex- 
erted for the promotion of party purposes. It hence 
gives an additional, an unnecessary, and a danger- 
ous power to a majority, and gives them the means 
of perpetuating that power, indefinitely. It is tak- 
ing productive capital from the hands of the owners, 
and vesting it in hands where there is every tempta- 
tion to spend it uselessly, if not viciously. The 
world has never yet seen a government so pure, that 
it would not become corrupt, if a surplus revenue 
were permanently placed at its disposal. * 

* Of that portion of the late surplus revenue which has been 
distributed among the states, the greater part has already been ap- 
propriated to internal improvements of very doubtful utility. No 
man can look upon such a waste of property without pain, espe- 
cially when he remembers, that these millions were raised by ob- 
liging the poor man to pay a higher price for his coat, his axe, Lit 
loaf of bread, his salt and his fuel. 



EXPENSES OF CIVIL GOVERNMENT. 423 



SECTION II. 

OF THE PURPOSES FOR WHICH THE PUBLIC REVENUE IS 
COMMONLY EXPENDED. 

The funds of the public, after they have been col- 
lected, are most commonly expended for some or for 
all of the following purposes. The support of Civil 
Government ; Education of the people ; The main- 
tenance of the institutions of religion ; National 
improvements ; Pauperism ; and War. Of these, 
we shall now proceed to treat in their order. The 
principles which we have already illustrated, will, 
however, render it unnecessary to consider them at 
great length. A few remarks upon each, will be 
all that we shall here attempt. 

I. Of expenses for the support of civil government. 

This is by far the most necessary of any of the 
objects of public expense. Without government 
there could be no society ; and without society, there 
could be neither redress of wrong, nor security of 
property. But government cannot be administered 
without officers, and no one will devote himself to 
the discharge of the duties of civil office, unless he 
be paid for it. 

The principles which should govern this branch 
of expenditure, are therefore few and simple. 

1. Economy requires, that precisely such talent 
should be employed, in the various offices of civil 
government, as may be necessary to insure the dis- 
charge of the duties of each office, in the best possi- 
ble manner. Many of these offices, can only be 
discharged successfully, by the first order of human 
talent, cultivated by learning and discipline, and di- 
rected by incorruptible integrity. Now it is certain- 
ly bad economy, to employ inferior talent to do badly, 
that which can only be of any service when it is 
done well. 



424 EXPENSES FOR EDUCATION. 

2. Hence, the salaries of judicial, legislative, and 
executive officers should be such as will command 
the services of such talent as the duties of each of- 
fice require. It is most unwise parsimony, to give 
to a judge such a salary as will command the ser- 
vices of nothing more than a third rate lawyer ; and 
it is mean to ask an individual to do a service for 
the community at a lower rate than that at which he 
would do it for an ivdividual. 

In answer to this, it may be said, that by bestow- 
ing large salaries upon the offices of government, we 
present temptations to avarice. But, I reply, the 
reduction of salaries, by no means diminishes the 
evil. Were emolument to be reduced, there would 
always be a contest for office. The only question 
then is, whether we shall have the contest between 
men of high or between men of low character ; be- 
tween those who are capable of serving us to our 
advantage, or those who are only capable of serving us 
to our disadvantage. Were the most important trusts 
in the government to command no higher salaries 
than the wages of day laborers, there would be as 
great competition for them as at present ; only, then, 
the contest would be between day laborers, instead 
of being between men of professional ability. 

Here, however, I am willing to allow that the 
principles of wages formerly illustrated, should have 
their full effect. For instance, where an office con- 
fers rank, or dignity, or indicates professional emi- 
nence, the emolument should be less than would 
otherwise be paid for the same amount of service. 
Again ; when an office is permanent, the emolu- 
ment should be less than when it is temporary. But, 
on the other hand, if it be insisted upon, that neith- 
er rank nor consideration shall be allowed to the 
public officer, but that all men are and must show 
themselves to be, on a level ; the remuneration of of- 
fice should be higher. And also, when an office is 
temporary, and the having held it, disenables the 
incumbent from subsequent professional employ- 



EXPENSES FOR EDUCATION. 425 

ment, the remuneration should rise accordingly. In 
such cases, a pension should be attached to the of- 
fice, if its duties, for a given time, have been faith- 
fully discharged. 

II Of expenses for the purpose of education. 

1. Education is of two kinds, common and scien- 
tific. Common education, is limited to the teaching 
of those branches of which a knowledge is necessary 
in the pursuit of the ordinary occupations of life. 
This is a proper object for national expenditure, be- 
cause it is for the interest of every man, that every 
other man should be acquainted with the elements of 
learning. Specially is this the case in a representa- 
tive government. 

A question, however, occurs, both as to the man- 
ner in which such a revenue should be raised, and 
the manner in which it should be distributed. It 
may, for instance, be raised like any other tax, and 
paid into the public chest, and the teachers be paid 
as officers of the government. Or, it may be raised 
in the different districts in which the schools are to 
be supported, and paid into the hands of district of- 
ficers, who both oversee the schools and employ the 
teachers. The latter seems to be by far the prefer- 
able method. In this manner, there will be by far 
the most lively interest maintained in behalf of 
schools, the appropriation of money will be more' 
vigilantly guarded, and the teachers will more pro- 
bably be appointed on account of their skill and abil- 
ity. The appointment of so many teachers could 
rarely be effected by a central government, with 
either skill or fidelity. And the community, having' 
no interest either in the selection or the remunera- 
tion of the teacher, would rarely take that interest 
in the subject of education, which the good of the 
pupils requires. : 

On this subject, the principles to be kept in view 

seem to be simple. It seems necessary, that everjr 

district sufficiently large to maintain a school, should 

be obliged to maintain one, and that, for this pur- 

36* 



426 EXPENSES FOR EDUCATION. 

pose, the necessary funds be raised by the authority 
of the public. When, however, these funds have 
been raised, they may safely be left in the power of 
each district itself, in the belief, that those who have 
themselves earned and contributed the money, will 
be more likely than any other persons, to disburse it 
skillfully and economically. Besides this, as upon 
such a system, teachers will be wanted in large num- 
bers, it may be desirable that seminaries be estab- 
lished for the special purpose of educating them. 
This will give uniformity to the system of instruc- 
tion, and enable the science of education, through- 
out a whole community, the more easily to keep 
pace with the progress of science, in other depart- 
ments of knowledge. 

2. Of scientific education. 

That the cultivation and the diffusion of science 
is greatly advantageous to a whole community, does 
not, I trust, require proof. Nations are, at present, 
principally enriched by the result of discovery and 
invention ; and in consequence of the general diffu- 
sion of knowledge and intelligence. That a portion 
of the national revenue should be directed to the 
promotion of these objects, seems both equitable and 
wise. 

As both the cultivation and the diffusion of science 
may be performed by the same individuals, and, as 
the same instruments are needful for both purposes, 
these two objects have been commonly united. The 
design of an establishment for scientific education is 
two fold. 1st. To diffuse abroad the knowledge al- 
ready existing, and 2dly, to add to the amount of 
knowledge that now actually exists. Seminaries of 
learning have rarely been successful in accomplish- 
ing either one of these objects, when they were not 
also successful in accomplishing the other. The 
only question to be considered here is this. In what 
manner, and how, at the least expense, may a gov- 
ernment promote the cultivation and diffusion of 



EXPENSES FOR EDUCATION. 427 

science, by means of seminaries of higher educa- 
tion. 

1. I have remarked when treating of production, 
that the instruments, the books and the buildings ne- 
cessary for the accomplishment of these objects, are 
very expensive, and can rarely be possessed by in- 
dividuals. Or, if they were possessed by individ- 
uals, the cost of the investment would render edu- 
cation so expensive, as to restrict it entirely to the 
rich. Hence, we see that public provision for scien- 
tific education, instead of benefitting the wealthy, is 
specially, a benefit to the poor. The furnishing of 
these means, is the most important duty of a gov- 
ernment, in so far as scientific education is con- 
cerned. 

2. Whether teachers should pay for the use of 
such means, may be easily decided. If they pay 
for such use, they must charge a proportionally high- 
er price for tuition. If they have the use for noth- 
ing, their charges for tuition will fall in proportion. 

3. The emolument of the teacher should be made 
to depend upon his professional skill and ability. In 
no other manner will the necessary stimulants be 
presented to professional industry ; and in no other 
way will it be rendered impossible for a man to sup- 
port himself in this profession, without performing 
its duties with skill and fidelity. I have no doubt 
that the mode, in this country, of remunerating all 
college officers by a fixed salary, is exceedingly un- 
favorable to the progress of education. If, for the 
sake of promoting the study of a particular science, 
funds be provided for the partial support of an 
instructor, they should always be so managed, as 
not in any manner to conflict with the principle here 
advanced. 

4. If, in addition to this, funds be provided for the 
education of a certain number of those who are in- 
digent, I think this should be done upon the follow- 
ing principles : — 



42S EXFENSES FOR EDUCATION. 

1. The provision should be so made, as to benefit 
merely the indigent, and not reduce the price of tui- 
tion to the whole. If tuition be so expensive that 
A cannot procure it, and it be desirable to educate 
him, it may be well to make provision for him. But 
this is no reason why the price of tuition should be 
reduced, in an equal degree, for B, C, D, and the 
rest of the community, who are able to pay for it at 
its natural cost. 

2. The provision should be so made as not to in- 
terfere with the principle above advanced, that teach- 
ers be rewarded according to their skill and fidelity. 
If it be so made that a college, on account of its 
cheapness, will always be full, and its officers be 
paid, whether they perform their duties or not, it 
will retard, instead of promoting the cause of edu- 
cation. 

3. It might be of advantage, supposing a series of 
schools were established, if gratuitous admission to 
the higher seminaries were the reward of talent, 
diligence and good conduct in the lower. This would 
be a strong stimulant to effort in the lower schools, 
and would be more likely than any other mode, to 
limit the bounty of the public, to those who are the 
most deserving of it. 

It may not be amiss here to add, that the success 
of public efforts for the purpose of promoting scien- 
tific education, will depend very greatly upon the 
mode in which those efforts are exerted. If they be 
directed to the single object of reducing the cost of 
education, nothing but this object will be effected. 
Pupils will pay the smallest possible sum for tui- 
tion, and the instructors will receive the smallest 
possible remuneration for their services, and their 
services will be of the smallest possible value. A 
man would be considered very simple, who flattered 
himself that he could purchase twenty-five dollars' 
worth of broadcloth, or flour, or coffee for five dol- 
lars. Let him please himself with his own fancies 
as he may, it will be found in the end, that for five 



RELIGIOUS ESTABLISHMENTS. 429 

dollars, he has received no more than five dollars' 
worth. The case is the same with education. Men 
may have teachers worth five hundred or one thou- 
sand, or two thousand, or three thousand dollars per 
annum. But they will greatly mistake, if they sup- 
pose, that by any process yet discovered, services 
worth three thousand dollars can be procured for 
five hundred dollars. 

By merely reducing the cost, education will de- 
crease in quality as it increases in quantity. As the 
article is found to be less valuable, it will in the end, 
be less in demand ; and thus, at last, not merely will 
the quality have deteriorated, but the quantity pro- 
duced will also have diminished. 

On the other hand, if the efforts of the public be 
directed to improvement of education, the increased 
value of an education will induce a greater number 
to avail themselves of its advantages. The literary 
taste of the community will be elevated; the de- 
mand for education will increase, and thus, not only 
will the quality of the product be improved, but 
the amount disposed of will be greatly augmented. 
If these views be correct, it will follow, that the ef- 
forts in behalf of a collegiate education in this coun- 
try, have not always been wisely directed, and that, 
if much that has been done to lender education cheap, 
had been done to render education good, it would 
have been far better for the cause of science, [and 
of professional learning among us. 

III. Of expenses for maintaining religious wor- 
ship. 

These expenses need to be borne by men in some 
manner associated together. It, however, by no 
means follows, that they are to be borne by men as 
members of civil society. It cannot be proved that 
the Christian religion needs the support of civil gov- 
ernment, since it has existed and flourished when 
entirely deprived of this support. And, if it be 
said, that every man derives benefit from religious 
services, inasmuch as these services improve the 



430 RELIGIOUS ESTABLISHMENTS. 

moral and intellectual character of his neighbors ; 
and hence, that every man ought to pay for their 
maintenance ; the argument may be easily met as 
follows. It is granted, that every man is benefitted 
by the regular administration of the ordinances of 
religion, but this is not the reason for which these 
ordinances are established. Nor is it to be taken for 
granted that a man denies this benefit unless he as- 
sert it. Men unite with their neighbors to procure 
religious instruction, for their own benefit, and not 
for the benefit of others. If it happen, accidental- 
ly, that others are benefitted, it does not follow, that 
they are obliged to pay for this benefit. If my 
neighbor erect a building for his own profit, on 
his own land, and thus improve my property, I 
am not obliged to unite in defraying the expenses of 
his building. I am entitled gratuitously to this ac- 
cidental advantage. I think the same principle ap- 
plies to the case in question. 

The only ground on which the support of religion 
by public taxation can be defended, is, that its exist- 
ence is necessary to the support of civil government, 
and that it can be sustained in no other manner than 
by compulsion. The first assertion we grant to be 
true. The second, we utterly deny. Hence we do 
not believe that any taxation for this purpose is ne- 
cessary. All that religious societies have a right to 
ask of the civil government, is, the same privileges 
for transacting their own affairs, which societies of 
every other sort possess. This, they have a right to 
demand, not because they are religious societies, 
but, because the exercise of religion is an innocent 
mode of pursuing happiness. If these be not grant- 
ed, religious men are oppressed, and the country 
where such oppression prevails, let it call itself what 
it may, is not free. 

IV. Of national improvement. 

Another purpose, for which the public funds are 
frequently expended, is national improvement. The 
principles which seom to apply to this case, have 



OF THE EXPENSES. OF PAUPERISM. 431 

been already stated. They are briefly these. Im- 
provements of coasts, and harbors, and all that is 
necessary for the security of external commerce, 
must be done by the public. Internal improvements, 
such as roads, canals, railroads, &c, may, in general, 
be safely left to individual enterprise. If they would 
be a profitable investment of capital, individuals 
will be willing to undertake them. If they would 
be an unprofitable investment, both parties had bet- 
ter let them alone. The only case in which a gov- 
ernment should assume such works, is that in which 
their magnitude is too great for individual enter- 
prise, or that in which the power which they confer, 
is too great to be intrusted to private corporations. 
Whenever they are undertaken, the principles on 
which the expenditure should be made, are the same 
as those which govern the expenditure of individ- 
uals. 

V. Of the expenses of pauperism. 

To relieve the sick, the destitute and the helpless, 
is a religious duty, and therefore should, like every 
other religious duty, be a voluntary service. Hence, 
charity in a moral and religious community, should 
generally be dispensed by individuals from their 
own resources, or from the resources of voluntary 
associations. 

Nevertheless, as cases frequently occur which 
could not, with sufficient promptness, be relieved by 
the aid of individuals, or in which the burden would 
press too heavily on the most charitable, it may be 
proper that some public provision should be made 
for the relief of those whom old age, or infancy, or 
sickness, has deprived of the power of providing the 
means necessary for sustenance. 

By far the greater number of persons requir- 
ing such aid, are however, capable of some labor, 
and are also possessed of some skill. They are 
also far happier, when engaged in suitable labor, 
than when idle. It is therefore the dictate of be- 
nevolence, as well as of economy, to provide them 



432 OF WAR. 

with means of profitable occupation. This labor 
and skill, if judiciously employed upon capital, will 
commonly defray the expenses of the support of 
paupers. Hence, the best method of relieving the 
poor, is to provide some establishment furnished 
with sufficient capital, in which, all the poor who 
need assistance, may be employed and supported. 
In many cases in New England and New York, 
farms have been purchased by towns or by coun- 
ties, for this purpose. It has generally been found, 
that the only expense necessary to be incurred, is 
the purchase of the farm, or the first investment of 
the capital. The establishment, after this, under 
judicious management, has generally paid its own 
expenses, and, in some cases, as I have been in- 
formed, has even yielded a revenue to the public. 
The expenses of pauperism, if they be defrayed in 
this manner, must of necessity, be very moderate : 
while a competent and convenient provision may be 
made, for every individual who actually deserves 
assistance. 

VI. Of War. 

The cheapest defence of nations, I suppose to be 
the exercise of justice and benevolence. If, how- 
ever, a nation resolve to rely upon its military prow- 
ess, and to encounter the dangers to its liberty, 
which necessarily arise from the existence and em- 
ployment of military force, economy would direct 
that both its plans and means of defence, should be 
extensive, scientific and complete. Its territory and 
its coasts should be accurately surveyed with refer- 
ence to this object. Its assailable positions should 
all be strongly fortified. Munitions of war should 
be provided in abundance. Schools for instruction 
in the art of war, should be supported at the public 
expense, and the persons so educated should be main- 
tained, either in whole or in part, at the public ex- 
pense, so that their services may be commanded, 
whenever they may be required. In this, as in ev- 
ery other case, economy teaches us, that if a given 



OF "WAR. 433 

object is to be effected, no expense is unreasonable, 
which is necessary to effect it in the most perfect 
manner. The manner of expenditure is to be 
learned from the teachers of military science. Econ- 
omy therefore, directs that the most valuable talent 
should be employed, at whatever expense, for pro- 
viding the plans of defence, that these plans should 
be fully and perfectly carried into effect, and that all 
should be done at no greater cost than is necessary 
to the accomplishment of the object. 



37 



NOTE. 

[The subject of the Currency occupies, at pres- 
ent, so prominent a place in the public attention, 
that I have added, in the form of a note, the article 
on the Precious Metals entire, from Mr. McCulloch's 
Dictionary of Commerce.] 

To enter fully into this interesting and difficult subject would re- 
quire a long essay, or rather a large volume. Mr. Jacob has re- 
cently published an "Historical Inquiry into the Introduction and 
Consumption of the Precious Metals," in which he takes up the 
subject at the earliest period, and continues it to the present day. 
This work, though neither so complete nor satisfactory as might 
have been expected, contains a good deal of valuable information, 
and deserves the attention of all who take an interest in such in- 
quiries. We confess, however, that several of the learned author's 
statements and conclusions seem to us to be not a little wide of the 
mark. We shall notice one or two of them in the course of this 
article. 

1. Supply of Precious Metals. — Since the discovery of America, 
the far greater part of the supplies of gold and silver have been 
derived from that continent. Previously to the publication of 
Humbolt's great work Essai Politique sur la Nouvelle Espagne, 
several estimates, some of them framed by individuals of great in- 
telligence, were in circulation, of the quantities of gold and silver 
imported from America. They, however, differed widely from each 
other, and were all framed from comparative limited sources of in- 
formation. But these have been wholly superseded by the more ex- 
tensive and laborious investigation of M. Humboldt. This illus- 
trious traveller, besides being acquainted with all that had been 
written on the subject, and having ready access to official sources 
of information unknown to the writers already alluded to, was well 
versed in the theory and practice of mining, and critically exam- 
ined several of the most celebrated mines. He was therefore in- 
comparably better qualified for forming correct conclusions as to 
the past and the present productiveness of the mines, than any of 
those who had hitherto speculated on the subject. His statements, 
have, indeed, been accused of exaggeration, and we incline to 
think that there are grounds for believing that this charge is, 
in some measure, well founded, particularly as respects the ac- 
counts of the profits made by mining, and the extent to which the 
supplies of the precious metals may be increased. But this criti- 
cism applies, if at all, in a very inferior degree, to the accounts M. 



MC CULLOCH ON THE PRECIOUS METALS. 435 

Humboldt has given of the total produce of the mines, and the ex- 
ports to Europe. And, making every allowance for the imperfec- 
tion inseparable from such investigations, it is still true, that the 
statements in question, and the inquiries on which they are found- 
ed, are among the most valuable contributions that have ever been 
made to statistical science. 

According to M. Humboldt, the supplies of the precious metals 
derived from America have been as follows : 

Dollars a Year Dollars a Tear 

at an Average. at an Average. 

From 1600 to 1700 16,000,000 
_ 1700 — 1750 22,000,000 
— 1750 — 1803 35,300,000 



From 1492 to 1500 - 250,000 
— 1500 — 1545 - 3,000,000 
_ 1545 — 1600 11,000,000 



(Essai sur la Nouvelle Espange, tome iii. p. 428, 2d ed.) 
The following is M. Humboldt's estimate of the annual produce 
of the mines of the New World, at the beginning of the present 
century : 

Political Divisions. 
Vice-royalty of New Spain, . . . $23,000,000 
Vice-royalty of Peru, . • . . . 6,240,000 
Captain-generalship of Chili, . • . 2,060,000 

Vice-royalty of Buenos Ayers, . . . 4,850.000 
Vice-royalty of New Granada, . . . 2,990^000 
Brazil, • , . 4,360,000 



Total, $43,500,000 

Taking the dollar at 4s. 3d., this would give £9,343,750 as the 
total annual produce of the American mines. M. Humboldt fur- 
ther estimated the annual produce of the European mines of Hun- 
gary, Saxony, <^c, and those of Northern Asia, at the same period, 
at about £1,000,000 more. 

The quantity of gold produced in America at the beginning of 
the century, was to the quantity of silver as 1 to 46; in Europe, 
the proportions were as 1 to 40. The value of equal quantities 
of gold and silver were then in proportion of 15 or 15 1-2 to 1. 
Latterly the quantity of gold produced has increased, as compared 
with the quantity of silver. 

From 1800 to 1810, the produce of the American mines was con- 
siderably increased; but in the last mentioned year the contest be- 
gan which terminated in the dissolution of the connection be- 
tween Spain and the South American colonies. The convulsions 
and insecurity arising out of this struggle; the proscription of the 
old Spanish families, to whom the mines principally belonged, who 
repaired, with the wrecks of their fortunes, some to Cuba, some to 
Spain, and some to Bordeaux and the south of France ; #iave caused 
the abandonment of several of the mines, and an extraordinary 
falling off in the amount of their produce. There are no means of 
accurately estimating the precise extent of this decline ; but ac- 
cording to Mr. Jacob, who collected and compared all the existing 
information on the subject, the total average produce of the Amer- 
ican mines, inclusive of Brazil, during twenty years, ending with 



436 MC CULLOCH ON THE PRECIOUS METALS. 

1829, may be estimated at £4,036, 833 a year; being less consider- 
ably than one half of their produce at the beginnning of the cen- 
tury ! — (Jacob, vol. ii. p. 267.) 

Since the publication of Mr. Jacob's work, some further light has 
been thrown on this subject, by the publication of returns obtained 
by the British consuls in South America, of the produce of the 
mines at different periods. They differ considerably from those 
given by Mr. Jacob. The following is an abstract of their results, 
comparing the twenty years ending with 1809 with the twenty 
years ending with 1829 : — 

Mines. 1790 lo 1809. 1810 to 1829. 

Mexico, £98,952,631 £46,301,804 

Panama, 223,518 23,603 

Chili, 1,808,710 2,782,702 

Buenos Ayres, 21,149,786 10,057,732 

Total of America, £122,134,695 £60,165.891 

Russia, 5,206,724 

65,372,615 
There are so many sources of error attached to all investigations 
of this sort, that these results, though deduced from what may be 
reckoned good authority, cannot be altogether depended on. Tho 
consular returns contain no account of the produce of the Peruvian 
mines, except in so far as they come under the head of Buenos 
Ayres; and in this respect they differ very widely from the state- 
ments given by Mr. Jacob, who estimates the produce of the mines 
of Peru and Buenos Ayres, during the twenty years ending 1829, 
at about £18,500,000 ! * We also incline to think that the mines 
and washings in Columbia are not quite so neglected as they are 
said to be by the consul. It will be observed, too, that the account 
does not include the produce of the Brazilian mines. They are 
supposed to have yielded, since 1810, about 1,500,000 dollars a 
year; but this is not more than adequate for the wants of the coun- 
try. The produce of the Russian mines was comparatively tri- 
fling till 1810; but it has since increased, and is continuing to in- 
crease with considerable rapidity. 

Adding to the produce of the American, that of the Russian 
mines, and separating the gold from the silver, their total produce, 
according to the consular returns, during each of the four decennial 
periods, ending with 1829, has been about — 

Gold. Silver. Holli. 

Ten years ending 1799 £3,295,000 £59,200,000 £,62,535,000 

1809 4,180,000 55.367,000 59,547,000 

• ]819 3,955,000 20,953,000 33,908,000 

1829 5,752,000 25,712,000 31,464,000 

This gives £3,146,000 for the average annual supply of the 
American and Russian mines during the ten years ending with 
1829. But the returns show that the produce of the Mexican mines 
had begun materially to increase in the latter years of this period ; 
and we have to add to the above the produce of the Hungarian 
and Saxon mines. Hence, allowing for the increase that has taken 



MC CULLOCH ON THE PRECIOUS METALS. 



437 



place since 1829 in the productiveness of the Mexican and South 
American mines, exclusive of Brazil, and adding to their produce 
that of the Russian and other European mines, we may safely esti- 
mate (assuming the consuls not to have under-rated the American 
returns) the present annual supply of gold and silver from these 
sources at considerably more than £4,000,000. 

Exclusive of the sources now mentioned, the United States have 
recently begun to afford considerable quantities of gold. It was 
first discovered in North Carolina, in 1804 ; and from that period 
till 1829, about 109,000 dollars had been found. It has since been 
discovered in other States. The following Table exhibits the value 
of the gold annually produced in the United States since 1829. — 
(American Almanac for 1834.) 



States. 


1829. 


1830. 


1831. 


1832. 


Virginia, 


$2,500 


$24,000 


$26,000 


$34,000 


North Carolina, 


134,000 


204,000 


294,000 


458,000 


South Carolina, 


3,500 


26,000 


22,000 


45,000 


Georgia, 


- - 


212,000 


176,000 


140,000 


Alabama, 


- - 


- . 


1,000 


- - 


Tennessee, 


- - 


- - 


1,000 I 


1,000 



Total, 140,000 466,000 520,000 678,000 

This table shows a considerable increase ; the produce in 1832 
being above £135,000. It is principally obtained by washing the 
soil in the valleys. Taking this new supply into account, and in- 
cluding, as was done by M. Humboldt, the produce of the Brazilian 
mines ; and further adding £500,000 to the sums given in the con- 
sular returns, to cover the deficiences which they certainly in- 
volve ;* we may safely estimate the entire annual produce of the 
American, European, and Russo-Asiatic mines, as amounting, at 
this moment, to about £6,000,000 a year; being 6-10ths of their 
annual produce when greatest. 

2. Consumption of Precious Metals. — Gold and silver are sup- 
plied either to serve as coin, or made use of in the arts. There are 
no means whatever by which to discover the proportion in which 
they are applied, at any given period, to these purposes; and the 
proportion is perpetually varying with the varying circumstances 
of each country; as, for example, with the greater or less abun- 
dance of paper money, and the degree in which the use of coins 
is saved by the various devices resorted to by means of banking and 
otherwise for economizing currency, the greater or less wealth of 
the inhabitants, the fashion as to plate, the feeling of security at 
the moment, and a thousand other circumstances, all of which are 
liable to great and sometimes sudden changes. 

According to Mr. Jacob, the value of the precious metals annu- 
ally applied to ornamental and luxurious purposes in Europe, may 
be estimated as follows: viz. Great Britain, 2,457 ,221L ; France, 
1,200,000/.; Switzerland, 350,000/. ; remainder of Europe, 1,605,- 
499/. ; making in all, 5,612,711/. And adding to this the sums di- 

* Even with this addition, their produce in materially under the sum mentioned by 
Mr. Jacob. 

37* 



43S MC CULLOCH ON THE PRECIOUS METAL. 

rectly applied to the same purposes in America, the whole will be 
about 5,900,000/. 

The data upon which this estimate has been founded, are in the 
last degree vague and unsatisfactory. It can hardly, indeed, be 
looked upon as any thing better than a mere guess ; and as such, 
we do not think that it is a very happy one. M. Chabrol (whose 
researches are far more worthy of confidence than those of M. 
Chaptal, to which Mr. Jacob refers) estimates the consumption of 
gold and silver in the arts at Paris at 14,552,000 francs a year — 
(Recherches Statistiques sur la Ville de Pans, 1S23, Tab. No 85J; 
which corresponds with the elaborate estimate of M. Benoiston 
de Chateauneuf — Recherches sur les Consummations de Paris en 
1817, 2de partie p. 78.) Both these authorities agree that the con- 
sumption of the precious metals in the arts at Paris is double that of 
the rest of France; so that we have 21,828,000 francs, or 866,1902. 
for the consumption of the whole kingdom, which is 333,8102. a year 
under Mr. Jacob's estimate. 

We have been assured, by those who havegood means of forming 
a correct opinion upon such a point, that the quantity assigned by 
Mr. Jacob for the consumption of Great Britain is over-rated in 
about the same proportion as the consumption of France, or about 
1-4 part. There has, no doubt, been a considerable increase of late 
vears in the consumption of plate and gilt articles ; but it would re- 
quire far better evidence than any hitherto laid before the public, to 
warrant the conclusion that so large a sum as 2,457,0002. is appro- 
priated to such purposes. 

The consumption of Switzerland, as set down by Mr. Jacob, is 
probably not far from accurate. But the sum assigned for the ag- 
gregate consumption of the rest of Europe seems to be quite as 
much exaggerated as that allowed for France and England. 

According to this view of the matter, the consumption will be, — 
Great Britain, 1,842,9162.; France, 866,1902.; Switzerland, 350,- 
0002.; rest of Europe, 1,204,1182. in all, 4,263,2242. To this must 
be added 309,0002. for the consumption oi America making the en- 
tire consumption 4,563,2242. 

Probably this valuation is still too high. According to M. Hum- 
boldt (Nouvclle Espagne, 2d edit, tome iii. p. 464), the total con- 
sumption of the precious metals in Europe, for other purposes than 
those of coin, amounts to only 87,1S2,800 francs equal, at the ex- 
change of 2520, to 3,459,7142. : and adding to this 300,0002 for the 
consumption of America, the grand total will be, in round numbers, 
3.760,000/.; being 803,0002. under our estimate, and no less than 
2,140,0002. under that of Mr. Jacob ! 

But a portion of the gold and silver annually made use of in the 
arts is derived from the fusion of old plate, the burning of lace, 
picture frames, &c. Here, however, we have to lament the im- 
possibility of ascertaining the proportion the supply from this source 
bears to the total quantity wrought up. Mr. Jacob estimates it at 
only l-40th part, or 2 1-2 per cent. ; but so small a sum seems to 
be quite out of the question. Most part of the precious metals em- 
ployed in plating, gilding, &r., is certainly destroyed; but the 
quantity of metal so made use of is admitted by every one to be de- 



MC CULLOCH ON THE PRECIOUS METALS. 439 

cidedly less than the quantity used in the manufacture of plate, 
watch-cases, and other articles of that description. And these, 
when they either become unfashionable, or are broken or injured, 
are, for the most part, sent to the melting pot. According to the 
statement of Necker, quoted and sanctioned by Humboldt, a half 
of the gold and silver used in France by goldsmiths and others in 
arts, is supposed to be obtained from the fusion of old plate, &c. — 
(Nouvelle Espange, tome iii. p. 467.) 

But, notwithstanding the high authority by which this estimate 
is supported, we believe that it is nearly as much above the mark 
as Mr. Jacob's is certainly below it. Assuming, therefore, that, at a 
medium, 20 per cent, or l-5th part of the precious metals an- 
nually made use of in the arts is obtained from the fusion of old 
plate, we shall have, by deducting this proportion from the 4,563,- 
000Z. applied to the arts in Europe and America, 3,650,OOOL as the 
total annual appropriation of the new gold and silver dug from the 
mines to such purposes, leaving about 2,000,0G0£. a year to be man- 
ufactured into coin. 

It is not much more easy to determine the consumption of the 
precious metals when manufactured into coin, than when in plate. 
Mr. Jacob has entered into some curious details (vol. ii. c. 28., to 
determine the abrasion or loss of coins from wear, which he esti- 
mates at l-600th part a year for gold, and l-200th part for silver 
coins. This, however does not give the total wear and tear of the 
coins. To determine the latter, the quantities lost by fire, ship- 
wrecks, and other accidents, must be taken into account. The loss 
from these sources can only be guessed at; but adding it to the loss 
by abrasion, perhaps we shall not be far wrong in estimating the 
whole at 1 per cent. 

It is singular that, in estimating the consumption of gold and sil- 
ver, Mr. Jacob should not have made the slightest allusion to the 
practice which has uniformly prevailed in all countries harrased by 
intestine commotions, or exposed to foreign invasion, of burying 
treasure in the earth. Of the hoards so deposited, a very consider- 
able proportion, has been altogether lost ; and there can be no doubt 
that this has been one of the principal means by which the stock of 
the precious metals has been kept down to its present level. Every 
one is aware that, during the middle ages, treasure trove, ox money 
dug from the ground by chance finders, belonged to the Crown, 
and formed no inconsiderable part of the royal revenue of this and 
other countries. The practice has always prevailed to a very great 
extent in the East. — Bernier, Voyage de Mogol, Amst. 1710, tome i.p. 
309., (Scrafton on the Government of Hindoostan, p. 16, &c) But it 
is "ot confined to that quarter. Wherever property is insecure, it is 
invariably resorted to. Mr. Wakefield tells us, that it is common 
in Ireland.— (Account of Ireland, vol. p. 593.) It has always pre- 
vailed to a considerable extent in Russia and France; and in the 
latter during the revolutionary anarchy, immense sums were 
buried, of which it is abundantly certain a large proportion will 
never be resuscitated. The wars and convulsions by which Eu- 
rope was desolated for more than 20 years extended the practice to 
all parts of the Continent; withdrawing in this way from circula- 



440 MC CULLOCH ON THE PRECIOUS METALS. 

tion a very considerable part of the increased produce of the mines. 
(Storch, Economic, Politique, tome i. p. 221, Paris, 1823. 

3. Exportation of the Precious Metals to the East. — It must be well 
known to all our readers, that from the remotest era, down to 
a comparatively late period, bullion has always formed one of the 
principal and most advantageous articles of export to the East. 
Humboldt estimated that, of the entire produce of the American 
mines at the beginning of this century, amounting, as already seen, 
to 43,500,000 dollars, no less than 25,500,000 were sent to Asia, — 
17,500,000 by the Cape of Good Hope,— 4,000,000 by the Levant, 
and 4,000,000 through the Russian frontier.- (JYouvelle Espange, 
tome iii. p. 443.) Latterly however, this immense drain has not 
only entirely ceased, but the current has, in fact, bcganto set strong- 
ly in the opposite direction. Thus it appears that the total imports 
of gold and silver from Europe and North and South America into 
Bengal, Madras, and Bombay, during the three years, ending with 
1830 and 31, amounted to 479,38SZ. ; whereas the total exports of 
the precious metals from these three presidencies to Europe and 
America, during the same three years were 1,11 9,973Z., being an 
excess of 640,585Z.; so that India, insteady of importing, as for- 
merly, very large quantities of bullion from the Western World, 
supplied, during the period in question, about 213,000/. a year to its 
markets \—(Parl. Paper, No. 390. Sess. 1833.) The same is the case 
with China. During the year, ending the 31st. of March, 1832, 
silver was exported from Canton to England to the amount of 
1,976,930 dollars, or 390,000/., besides about as much more export- 
ed to India! — A considerable part of this large export, consists of 
native silver, of which there are mines in several provinces. China 
has also mines of gold ; and in some late years her exports of that 
metal have been considerable ; she is, however, an importer as well 
as an exporter of gold, having for a lengthened period, drawn con- 
siderable supplies of that metal from Borneo, Celebes, and the Ma- 
lay peninsula. It appears, too, that the efflux of bullion from Rus- 
sia to China has ceased ; and that there, also, the current is setting 
the opposite way. — (Jacob, vol. ii. 320.) And if there be any sums 
still exported by way of the Levant, which is doubtful, they are 
certainly quite inconsiderable. 

4. Influence of the diminished Productiveness of the Mines on Pri- 
ces. — It has been customary in this country, to ascribe almost the 
whole fall that has taken place in the price of most commodities 
since the peace, to the diminished supply of bullion from the mines. 
But we doubt whether this circumstance has not been fully coun- 
terbalanced by others, and whether it has had iufluence in the 
way now mentioned. The cessation of the drain to the East, even 
admitting that M. Humboldt has somewhat over-rated its amount, 
would of itself have gone far to counteract the decreased produc- 
tiveness of the mines; but we have just seen that it has notmercty 
ceased, but that we are, in fact, deriving considerable supplies from 
that very quarter. In addition to this, the greater security and 
tranquility enjoyed on the Continent since the peace, has not only 
checked that burying of money, formerly so prevalent, but has 



MC CTJLLOCH ON THE PRECIOUS METALS. 441 

eaused the bringing to light of a good many of the subterranean 
hoards. The institution of savings' banks, now so common every 
where, has also, no doubt, tended to prevent hoarding, and to bring 
a good deal of coin into circulation, that would otherwise have been 
locked up. These circumstances, coupled with others that might 
be mentioned, such as the cessation of the demand for military 
chests, the greater employment of bills in mercantile transactions, 
&/-C, afford the best grounds for doubting whether the quantity of 
the precious metals annually applicable to the purposes of circula- 
tion be not as great at present, as in 1809 or 1810. It is further to 
be observed, that the falling off in the produce of the mines, has 
been in silver only ; and that the supply of gold, instead of being 
diminished during the last ten years, has been very materially in- 
creased : and as gold is the standard of our currency, it is obviously 
false to affirm that its value has been increased from its being less 
abundant than formerly. It is contended, indeed, that in estimat- 
ing the value of the precious metals, we cannot separate gold and 
silver ; and that the fall that has taken place in the prices of all 
commodities, since 1815, proves that the value of money has sus- 
tained a corresponding advance. But the value of gold is in no 
way depended upon, or connected with the value of silver. The 
exchangeable worth of each metal is wholly determined by the 
peculiarconditions under which it is supplied; and the circumstance 
of gold falling in value when silver is rising, is no more to be won- 
dered at, than that lead should fall when iron rises, or conversely. 
Neither is it true that the fall in the value of commodities since 
1815, has been universal. We admit it has been very general ; but 
we venture to affirm that there is not, without any exception what- 
ever, a single commodity that has fallen in price since 1814, the fall 
of which may not be satisfactorily accounted for, without reference 
to the supply of gold and silver. Multiplied proofs of what is now 
stated, will be found in various articles throughout this work. And 
we have little doubt that those who investigate the matter with any 
degree of care, will agree with us in thinking, that, even without 
distinguishing between gold and silver, were the influence of the 
decreased productiveness of the mines on prices estimated at, from 
3 to 5 per cent., it would be very decidedly beyond the mark. We 
believe its influence has been hardly perceptible. 

5. Probable future supply of Gold and Silver. — Nothing but con- 
jectural statements can be made as to the probable future supply of 
the precious metals. On the whole, however, we should think that 
a very considerable increase may be fairly anticipated. The anar- 
chy in which the new South American States have hitherto been in- 
volved, will come to a close; and, with the increase of population 
and capital, renewed attention will, doubtless, be paid to the mines. 
It is reasonable also, we think, to anticipate that the supplies from 
the Russian mines will continue to increase. 



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DR. WAYLAND'S WORKS. 



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i The following valuable works by the Rev. Dr. Wayland have be- i 
< come so well known, and generally introduced throughout the country, t 
\ that no commendatory notice seems necessary ; yet, to assist some wlio i 
S may not have seen the works to decide upon their merits • a specimen of% 
5 the many Reviews and Notices by distinguished individuals is here 5 
$ given : J 



? ELEMENTS OF MORAL SCIENCE. 

2 By Francis Wayland, D. D., President of Brown Univer- \ 
I sity, and Professor of Moral Philosophy : 12th edition. > 

* This work has already been adopted as a class book in most ofj 
\ the collegiate, theological and academical institutions of the country. 
> It is now thoroughly revised, improved, and handsomely stereo- 
<> typed, — and thus rendeied permanent and uniform. 

[Prom the Literary and Theological Review, by L. Woods, Jr.] 

This is a new work on morals, for academic use, and we wel- : 
come it with much satisfaction. It is the result of several years' \ 
reflection and experience in teaching, on the part of its justly 
distinguished author ; and if it is not in every, respect perfectly > 
what we could wish, yet, in the most important respect, it sup- 5 
plies a want which has been extensively felt. It is, we think, \ 

W^»^.^L»L ^,^- I 



:j 



I GOULD, KENDALL, AND LINCOLN'S PUBLICATIONS. £ 

£ substantially sound in its fundamental principle; and being? 
? comprehensive and elementary in its plan, and adapted to the \ 
5 purposes of instruction, it will be gladly adopted by those who > 
i have for a long time been dissatisfied with existing text-books, | 

1 particularly the work of Haley. The style is simple and per 
j spicuous, and at the same time manly and forcible ; it is an em 
i inent merit of the author that he has made a system of Chris- 

2 tian morals. We consider the work as greatly superior to .any 
5 of the books hitherto in use, for academic instruction. 
i [From Rev. Wleur Fisk, President of the Wesleyan University, 
J Middletown, Conn.] 

5 I have examined with great satisfaction and interest, the 
S :< Elements of Moral Science," from your press, by Dr. Way- 
| land. The work was greatly needed, and is well executed 
$ Dr. Wayland deserves, and I doubt not will receive, the grate 
|ful acknowledgments and liberal patronage of the pnblic. Il 
< need say nothing farther to express my high estimate of the ( 
\ work, than that we shall immediately adopt it as a text-book in * 

our University. \ 



A 






ELEMENTS OF MOEAL SCIENCE. 



J 



$ Abridged, and adapted to the use of Schools and Academies. | 

5 The attention of Teachers and School Committees is invited to this ? 

\ valuable work; — it has received the unqualified approbation of all who $ 

I have examined it; and must be acknowledged admirably calculated to t 

* exert a wholesome influence on the minds of the young ; aud lead to > 

J the formation of correct moral principles. $ 

[From the North American Review.] | 

x Since the appearance of the second edition of the work j 

I which we have been noticing, Dr. Wayland has published an * 

I abridgment for the use of schools. Of this step we can hardly ? 

t speak too highly. It is, as we have already stated, more than < 

5 time that the study of Moral Philosophy should be introduced j 

^ into all our institutions of education. We are happy to see the \ 

\ way so auspiciously opened for such an introduction. In its 5 

general style and illustrations, the smaller work appears to us to \ 

have been the result of more labor on the part ef the author £ 

t than the larger work itself. Indeed, he himself informs us, it has S 

£ been " not merely abridged but also re-ioritten." We cannot but \ 

regard the labor as all well bestowed. The difficulty of choos- ? 

$ ing words and examples as to make them intelligible and inter- <> 

1 esting to the child, is very great. The success with which Dr. $ 

Wayland appears to have overcome it, is in the highest degree > 

gratifying. We have no doubt that its circulation and utility < 

will far more than repay its author for the pains he has taken < 

with it. \ 



#* 



^ 



GOULD, KENDALL, AND LINCOLN S PUBLICATIONS. 



|rpHE ELEMENTS OF POLITICAL ECONOMY.— \ 

< JL Abridged for the use of Schools and Academies, by Fran- S 
\ cis Wayland, D. D. 

| [Extracts from, the Preface.] > 

i The success which has attended the abridgement of " The * 
• Elements of Moral Science," has induced the author to pre-? 

< pare the following abridgment of "The Elements of Political t 

< Economy." In this case, as in the other, the work has been* 
\ wholly re-written, and an attempt has been made to adapt it to J 
\ the attainments of youth. i 

< It is not, however, probable, that the present work can be ? 
| studied with advantage at as early an age as a treatise on morals. ? 
j We are capable of judging of right and wrong at a very early 5 

< age, and, therefore, at a very early age, the principles of morals i 
I may be inculcated. With Political Economy, however, it is | 
5 otherwise. Here the elements are more or less blended with 5 
I the social principles of man, and they are not readily under- S 
> stood without some practical acquaintance with the social consti- 5 
5 tution, and a habit of generalization which can only be the re- 5 
i suit of some degree of observation and experience. 



[From the Boston Recorder.] 



The original work of the Author, on Political Economy, has! 
already been noticed on our pages. And the present abridge- i 
ment stands in no need of a recommendation from us. We may j 
be permitted however to say, that both the rising and risen gen- 
erations are deeply indebted to Dr. Wayland, for the skill and i 
power he has put forth to bring a highly important subject dis- 
tinctly before them, within so narrow limits. Though " abridged 
\ for the use of Academies," it deserves to be introduced into< 
every private family, and to be studied by every man who has I 
an interest in the wealth and prosperity of his country. It Is S 
la subject little understood even practically by thousands, and J 
5 still less understood theoretically. And because not belter] 
5 understood, great ignorance prevails in regard to the measures j 
5 of government, and large portions even of the published dis- 1 
$ cussions of our grave Senators and mighty men in debate, fall to J 
<; the ground like water not to be gathered up. It is to be hoped ( 
j that this will form a class book, and be faithfully studied in our 5 
$ Academies; and that it will find its way into every family li- J 
< brary ; not there to be shut up unread, but to afford rich material < 
J for thought and discussion in the family circle. It is fitted toen-< 
5 large the mind, to purify the judgment, to correct erroneous $ 
\ popular impressions, and assist every man in forming opinions of i 
S public measures, which will abide the test of time and ex-$ 
5 perience. 5 

r 3 



